By Akash Sriram and Abhirup Roy
Jan 28 (Reuters) – Tesla said on Wednesday it will invest $2 billion in CEO Elon Musk’s artificial intelligence company xAI – and that production plans for the Cybercab robot taxi are on track for this year.
The news bolstered Musk’s plan to transform Tesla from an electric vehicle maker to an artificial intelligence company, which is key to the company’s roughly $1.5 trillion valuation, while ensuring production plans are critical to investor confidence as Tesla has repeatedly failed to deliver on Musk’s promises.
But Musk’s plan to build Cybercabs as well as humanoid robots, along with semi-trucks and Roadster sports cars, will mean a series of factory investments that will lead to capital spending of more than $20 billion this year, said Chief Financial Officer Vaibhav Taneja. That’s more than twice as much as $8.5 billion in 2025. Shares rose about 3.5 percent in after-hours trading, but pared gains on investment details to trade up 1.8 percent.
Tesla is “entering a transition phase” where it is asking investors to secure potential revenue from self-driving software in its car and robotaxi businesses before car sales recover, said Thomas Monteiro, senior analyst at Investing.com.
“(That) makes launch metrics — not deliveries — the most important leading indicator here,” Monteiro said.
Musk, who has made a number of inaccurate predictions about the rollout of robotaxis, has said he expects to have fully autonomous vehicles in a quarter to half of the United States by the end of this year.
He said robotaxis would reach half the U.S. population by the end of 2025 — before later narrowing that goal to deployment in the top eight to 10 metropolitan areas. The company has since missed those targets with a limited robotaxi service in Austin, Texas.
Tesla’s core EV business, which still accounts for most of the company’s current revenue, has been under strain as rivals launch newer models, often at lower prices. A US tax incentive for electric vehicles has also ended, and Musk’s far-right political rhetoric has alienated some customers.
On Wednesday, Musk told analysts on a conference call that Tesla would stop selling its Model S sedans and Model X SUVs — iconic vehicles that established the company as a leader in the EV market but have since dwindled to a small share of revenue. Factory space will be used to build robots.
Tesla’s revenue fell about 3 percent to about $94.83 billion in 2025, marking the company’s first annual revenue decline.
To defend volumes, Tesla has relied heavily on discounts and incentives and introduced lower-priced variants of its best sellers. Wall Street expects the company to deliver 1.77 million vehicles in 2026, representing growth of 8.2 percent, according to Visible Alpha data.
Adjusted earnings per share of 50 cents in the fourth quarter beat Wall Street targets of 45 cents, according to LSEG data. Net income fell 61% to $840 million in the quarter.
Despite the sales decline, the company’s auto gross margin, excluding regulatory credits, came in at 17.9 percent, up from 13.6 percent a year earlier and well above expectations of about 14.3 percent, according to Visible Alpha.
Its power generation and storage business has proven to be a notable bright spot, benefiting from buoyant demand for grid-scale batteries used to support renewable energy and stabilize power grids.
Revenue from the energy generation and storage segment rose 25.5 percent to a record $3.84 billion in the December quarter, beating analysts’ estimates of $3.46 billion.
“BOOM YA DORSANT”
Investors have increasingly focused on Musk’s push into self-driving and robotics technology, with many looking for evidence that the autonomy story is moving from promise to product.
A Tesla investment in xAI has been long overdue. Analysts said Tesla will benefit from advanced xAI models and rising valuation.
“With Tesla’s legacy electric vehicle business slowing, Tesla investors can take part in the red-hot AI boom,” said Andrew Rocco, stock strategist at Zacks Investment Research.
But Musk warned of a shortage of memory chips that could affect Tesla’s plans in the coming years, adding that it should look to build a chip factory to protect itself.
“If we don’t do that, we will be fundamentally limited by the supply chain,” he said. “In a worst-case geopolitical situation, it would be a pretty serious situation.”
The rapid build-out of artificial intelligence infrastructure by US tech firms has absorbed much of the world’s memory chip supply, driving up prices as manufacturers prioritize components for higher-margin data centers over consumer devices.
Investors also looked for signs that Tesla’s Full Self-Driving and robotaxi launches are moving forward, including updates on regulatory progress and clearer timelines for the purpose-built Cybercab, which is designed without a steering wheel or pedals.
The Cybercabs will be added to its robotaxi service, which is currently based on Model Y vehicles running a version of Full Self-Driving, and will also be available for purchase by consumers.
Last week, Musk said initial production of the Cybercab robotaxi and Optimus humanoid robot would be “agonizingly slow” before accelerating over time. On Wednesday, he said Tesla did not expect significant Optimus production volume until late 2026.
There are also regulatory hurdles involved in producing the Cybercab, which Musk said will have no steering wheel or pedals — contrary to current federal design standards.
He went on to predict rapid progress toward full self-driving, a vision he has outlined for nearly a decade, but provided no firm data for regulatory approval or widespread unsupervised deployment.
Still, Tesla shares are up about 11% in 2025. An $878 billion pay package for Musk, tied to a series of high operational and valuation milestones, reassured investors of his commitment to Tesla, among his other business and political interests.
(Reporting by Akash Sriram in Bengaruru and Abhiup Roy in San Francisco; Additional reporting by Chris Kirkham in Los Angeles; Editing by POJA DESAI, Peter Henderson and Matthew Lewis)
