Tesla Invests $2bn in Musk’s xAI, Ends Model S, Model X Production

AUSTIN, Texas: Tesla disclosed a $2 billion investment in xAI, the artificial intelligence startup founded by CEO Elon Musk, as part of the company’s pivot from electric vehicle maker to AI and robotics powerhouse. The announcement came during Tesla’s fourth-quarter earnings call on Wednesday, alongside plans to discontinue the Model S sedan and Model X SUV to free up factory space for Optimus humanoid robot production.

The investment marks Tesla’s most direct capital commitment to a Musk-controlled AI venture outside its corporate structure. Tesla executives emphasized the move would build efficiencies by leveraging xAI’s capabilities rather than duplicating AI development internally. The company already uses xAI’s Grok chatbot in some vehicles and supplies Megapack batteries to power xAI data centers.

The deal deepens financial ties between Musk’s companies at a moment when AI spending is accelerating across Big Tech. Tesla contributed to xAI’s $20 billion Series E funding round, with other investors including Nvidia, Cisco, Valor Equity Partners, Fidelity, and Qatar Investment Authority. The investment closes in the first quarter of 2026.

Tesla’s capital expenditures will exceed $20 billion in 2026, more than double the $8.5 billion spent in 2025, according to CFO Vaibhav Taneja. The spending will support production of Cybercab robotaxis, Semi trucks, Roadster sports cars, and Optimus robots. By repurposing the Fremont, California factory, Tesla aims to build 1 million Optimus robots annually.

The announcement came as Tesla reported fourth-quarter revenue of $24.9 billion, beating Wall Street estimates of $24.8 billion despite a 3% year-over-year decline. Adjusted earnings per share of 50 cents topped expectations of 45 cents. Automotive gross margin excluding regulatory credits reached 17.9%, up from 13.6% a year earlier and well above the 14.3% forecast.

Musk noted the investment addresses shareholder requests, stating many investors had asked Tesla to support xAI. However, Tesla shareholders voted against a similar measure in November 2025, though abstentions counted as opposing votes under company bylaws. Shares rose 1.8% in after-hours trading Wednesday after initially jumping 3.5%.

The move underscores Tesla’s transformation as it loses ground to Chinese EV rivals. Musk changed Tesla’s mission from accelerating the world’s transition to sustainable energy to building a world of amazing abundance, emphasizing AI’s role in delivering universal high income and better medical care. Analysts note Tesla is asking investors to underwrite potential revenue from self-driving software and robotaxi services before auto sales recover.