Tesla xAI investment took center stage on Wednesday as the company announced a $2 billion investment in CEO Elon Musk’s artificial intelligence firm, xAI. The move supports Tesla’s strategy to expand beyond electric vehicles and strengthen its position in AI-driven technologies.

The announcement comes as Tesla confirmed that production plans for its Cybercab robotaxi remain on track for this year. As a result, investors welcomed the update, viewing it as a sign of steady progress in the company’s autonomy roadmap.

Meanwhile, the Tesla xAI investment aligns with Musk’s long-term vision to transform the company into an AI-focused enterprise. This transition plays a key role in supporting Tesla’s valuation, which stands at around $1.5 trillion.

However, the shift will require heavy spending. Chief Financial Officer Vaibhav Taneja said capital expenditure is expected to exceed $20 billion this year. This figure is more than double the $8.5 billion recorded in 2025. The investments will support new factories and production lines for Cybercabs, humanoid robots, Semi trucks, and Roadster sports cars.

Following the announcement, Tesla shares rose about 3.5% in after-hours trading. Later, gains narrowed to around 1.8% after details on capital spending emerged.

At the same time, analysts see Tesla entering a transition phase. According to Thomas Monteiro of Investing.com, investors are now focusing more on rollout metrics than vehicle deliveries. He said this shift reflects growing expectations around self-driving software and robotaxi services.

Musk also shared updates on autonomous vehicle deployment. He said fully autonomous driving could reach between a quarter and half of the United States by the end of this year. Previously, he had projected broader coverage by 2025, before narrowing the target to major metropolitan areas. So far, robotaxi services remain limited, with pilot operations in Austin, Texas.

Meanwhile, Tesla’s core EV business continues to face pressure. Rivals are launching newer models at competitive prices. In addition, the end of U.S. tax incentives has affected demand. To adapt, Tesla has relied on discounts and introduced lower-priced trims.

On Wednesday’s earnings call, Musk announced that Tesla will stop selling Model S and Model X vehicles. These models once defined the company’s brand. However, they now contribute only a small share of revenue. The freed factory space will be used for robotics production.

Financially, Tesla’s revenue declined about 3% in 2025 to $94.83 billion. This marked its first annual revenue drop. Net income fell 61% to $840 million in the fourth quarter. However, adjusted earnings per share reached 50 cents, beating analyst estimates.

Despite sales pressure, profit margins improved. Automotive gross margin, excluding regulatory credits, rose to 17.9% from 13.6% a year earlier. This figure exceeded market expectations.

In contrast, Tesla’s energy generation and storage division delivered strong growth. Revenue in this segment increased 25.5% to a record $3.84 billion in the December quarter. Demand for grid-scale batteries continues to support renewable energy systems and electricity networks.

Looking ahead, Wall Street expects Tesla to deliver about 1.77 million vehicles in 2026. This would represent an 8.2% increase compared with current levels.

Meanwhile, investors remain focused on Tesla’s progress in self-driving and robotics. Analysts believe the xAI investment will enhance Tesla’s access to advanced AI models and improve its technological edge.

However, Musk also warned of potential memory chip shortages. He said supply constraints could limit future production and highlighted the need for in-house chip manufacturing to protect long-term operations.

Furthermore, regulatory challenges remain. The Cybercab is designed without steering wheels or pedals. This design does not fully align with current federal standards. As a result, approvals could affect rollout timelines.

Musk has acknowledged that early production of Cybercab robotaxis and Optimus humanoid robots will be slow. He added that significant Optimus volumes are not expected until late 2026.

Even so, Tesla shares gained about 11% in 2025. Investor confidence was supported by Musk’s long-term compensation package, which is tied to operational and valuation targets.

Overall, the Tesla xAI investment reflects the company’s efforts to balance its core EV business with fast-growing opportunities in artificial intelligence, autonomy, and robotics, reinforcing the strategic importance of the Tesla xAI investment.

Source: Reuters

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