Tesla’s Strategic Pivot: From Carmaker to AI and Robotics Powerhouse

Tesla is undergoing a fundamental transformation. Confronted with a historic decline in its core automotive revenue, CEO Elon Musk is steering the company toward a radically different future. The discontinuation of its flagship Model S and Model X vehicles signals this shift, marking a strategic move away from being purely an automaker to positioning itself as a leader in artificial intelligence and robotics.

The company's fourth-quarter 2025 results confirmed a significant challenge: revenues from its core business are contracting. The automotive division, still accounting for approximately 70% of total business, reported a 10% year-over-year drop in sales. This downturn is attributed to intensifying competition, particularly from Chinese rival BYD and established European automakers like Volkswagen and BMW, which are applying increasing pressure on the U.S. pioneer.

Doubling Down on Investment

In response, Musk has chosen an aggressive expansion over austerity. For the 2026 fiscal year, Tesla plans to more than double its capital expenditures to around $20 billion. These funds are earmarked for six factories and next-generation technologies, including the production of the driverless "Cybercab," the expansion of AI infrastructure, and the manufacturing of the humanoid "Optimus" robot.

The commitment to this overhaul is underscored by a symbolic decision: ending production of the Model S and Model X. Assembly lines at the Fremont, California plant are being retooled to build robots instead of luxury sedans.

Should investors sell immediately? Or is it worth buying Tesla?

Merger Speculation Fuels Investor Interest

Alongside this operational realignment, reports of potential structural changes are generating buzz. Evaluations are reportedly underway regarding the feasibility of merging Tesla with either the space exploration company SpaceX or the AI startup xAI. This follows Tesla's agreement in mid-January to invest $2 billion in xAI. Market participants have reacted favorably to these rumors, viewing them as a potential avenue to gain indirect exposure to Musk's other ventures.

Divergent Views from the Analyst Community

Financial experts are divided in their assessment of this new direction. Analysts at Canaccord Genuity characterize the situation as a point of no return, suggesting Musk has "burned the ships" and is fully committed to his new vision. Conversely, Morgan Stanley offers a more cautious perspective on the financial strain, slightly lowering its price target to $415 and citing the anticipated high cash burn from these substantial investments. Tesla shares are currently trading near 393 euros, having lost just over 12% on a monthly basis.

Investors await the next quarterly report, scheduled for April 21, 2026, for initial indications on whether the planned expansion of the robotaxi service into additional U.S. cities is progressing as intended. Tesla is now defining itself primarily through artificial intelligence, with its traditional car business increasingly serving as the funding mechanism for this high-stakes bet on the future.