Tesla has experienced its first-ever decline in annual revenue, prompting CEO Elon Musk to commit billions of dollars to advancements in artificial intelligence and robotics. In 2025, the company reported a 3% drop in overall revenue and a staggering 61% decrease in profits. In response, Musk announced that Tesla will discontinue its iconic Model S and Model X vehicles, redirecting its focus towards AI and autonomous driving technologies. This strategic shift is largely driven by investor demand, with Musk declaring a $20 billion investment next year as part of what he calls “making big investments for an epic future.”

The California facility, previously responsible for producing the S and X models, will now manufacture the Optimus humanoid robots, with a target of producing one million units annually. Tesla plans to allocate $2 billion to Musk’s xAI initiative, while the majority of funds will support projects like the Cybercab—a fully autonomous vehicle without pedals or a steering wheel—the Tesla semi-truck, Optimus robots, and infrastructure for battery and lithium production. Musk emphasized that this year will witness significant capital expenditure, underscoring the company’s commitment to future growth.

The sharp decline in Tesla’s financial performance follows Musk’s controversial involvement in politics, including a brief role in the Trump administration’s DOGE department. This involvement led to widespread protests in the US and UK, with Tesla vehicles targeted as symbols of dissent against the billionaire entrepreneur. Musk departed from the Trump administration in May of the previous year as Tesla car sales plummeted. Additionally, Musk has been embroiled in a dispute with the UK government over the use of X’s Grok AI to create inappropriate images of women and children. UK Prime Minister Sir Keir Starmer recently pledged to maintain pressure on Musk, who retaliated by labeling the UK as “fascist.” In response, X announced that Grok will no longer be allowed to alter photos to depict real people in inappropriate attire in jurisdictions where such actions are illegal.

A statement read: ‘We have implemented technological measures to prevent the Grok account from allowing the editing of images of real people in revealing clothing such as bikinis. This restriction applies to all users, including paid subscribers.’ Tesla joins Facebook-parent Meta, Microsoft and Alphabet in planning sharp increases in capital spending this year, as those companies invest heavily in hardware and data centres to support AImodel training and customer demand. Andrew Rocco, stock strategist at Zacks Investment Research, said he viewed the $20 billion as ‘necessary spending.’ ‘If Optimus is going to be a best-selling product, the AI must be trained as well as possible,’ he said, adding the planned spending gives him ⁠confidence that Musk’s ‘sometimes loose timelines will actually be honoured’.

Tesla’s Chief Financial Officer Vaibhav Taneja said the company has more than $44 billion in cash and investments on the books that it can use to fund the investments. He signalled this year was not likely to be the end of increased spending, adding the company could look ‍to pay for the investments ‘through more debt or ⁠other means’. Musk said Tesla was embarking on some of the spending projects not for fun, but rather ‘out of desperation’. ‘Can other people, please, for the love of God, in the name of all that is holy, can others please build this stuff?’ Musk said, referring to spending on cathode and lithium refining. ‘It’s very hard to build these ⁠things.’