Tesla will discontinue production of its Model S sedan and Model X SUV next quarter, ending manufacture of the two flagship vehicles that established the company as an electric vehicle pioneer, chief executive Elon Musk announced during Wednesday's earnings call.

The California factory space in Fremont currently producing the models will be repurposed to manufacture Optimus humanoid robots, according to TechCrunch. "It's time to basically bring the Model S and X programmes to an end with an honourable discharge, because we're really moving into a future that is based on autonomy," Musk told investors.

The discontinuation marks Tesla's clearest pivot yet from traditional electric vehicles towards artificial intelligence and robotics. The company reported its first annual revenue decline on record, with total revenues falling 3 per cent in 2025 to roughly $94.83 billion, Reuters reported. Net income plunged 61 per cent to $840 million in the fourth quarter.

Tesla launched the Model S in 2012 as its first ground-up design, positioning it as the vehicle that made electric cars widely appealing to mainstream consumers. The Model X SUV followed in 2015 with distinctive falcon-wing doors. Sales of both models have flatlined in recent years, representing just 3 per cent of Tesla's global deliveries in 2025.

The company separately disclosed a $2 billion investment in xAI, Musk's artificial intelligence venture founded in 2023. Chief financial officer Vaibhav Taneja said capital expenditure would exceed $20 billion this year, more than double the $8.5 billion spent in 2025, as Tesla ramps up spending on autonomous vehicle and robotics programmes.

Musk predicted that Tesla's Cybercab robotaxi would eventually sell in volumes "several times more" than all the company's other vehicles combined. However, CNN Business reported the robotaxi service remains limited, operating only in Austin, Texas with employee safety monitors.

Tesla plans to begin production of its Optimus humanoid robot before the end of 2026, with consumer sales targeted for 2027. "It's going to be a very big capital expenditure next year," Musk said. "We're making big investments for an epic future."

The company's automotive revenues dropped 11 per cent year-over-year in 2025, whilst adjusted earnings per share of 50 cents in the fourth quarter exceeded Wall Street targets of 45 cents, CNBC reported. Automotive gross margin excluding regulatory credits rose to 17.9 per cent from 13.6 per cent a year earlier, beating expectations of 14.3 per cent.

Tesla has faced mounting competition from legacy manufacturers and Chinese rival BYD, which overtook Tesla in January as the world's largest electric vehicle maker. BBC News reported the brand's reputation also suffered amongst some American and European buyers following Musk's political activities and close relationship with President Donald Trump.

The company's energy generation and storage business provided a bright spot, with revenue rising 25.5 per cent to a record $3.84 billion in the fourth quarter. Tesla shares rose approximately 2 per cent in after-hours trading.

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