Tesla, the electric vehicle (EV) maker led by billionaire Elon Musk, reported a 3% drop in annual revenue for 2025 and a 61% fall in profits in the last quarter, as the company pivots towards artificial intelligence (AI) and robotics.

The automaker announced it will discontinue production of its Model S and Model X vehicles, converting the California plant that produced them to manufacture its humanoid robots, known as Optimus. Musk also confirmed a $2 billion (£1.45 billion) investment in his AI venture, xAI, citing shareholder pressure despite mixed votes on the proposal.

The move comes as Chinese EV manufacturer BYD overtook Tesla as the world’s largest electric car maker. Analysts note Tesla’s dated vehicle lineup and declining high-end models prompted the shift to focus on higher-volume vehicles like Model 3 and Model Y, alongside emerging ventures in robotaxis and AI-driven technologies.

Musk described the upcoming capital expenditure of about $20 billion as an investment for an “epic future,” aiming to boost Tesla’s market value over the next decade to meet conditions of his record-breaking pay package. Tesla shares rose 2% in after-hours trading following the announcement.

The strategic pivot also follows Musk’s controversial political activities, including involvement in former US President Donald Trump’s administration, which affected consumer sentiment toward the company globally.

With inputs from BBC