Tesla invests $2 billion in Musk's xAI and reiterates Cybercab production starts this year

Tesla to Invest $2 Billion in xAI, Bets Big on Robotaxis and AI Pivot

Tesla said on Wednesday it will invest $2 billion in xAI, the artificial intelligence company founded by CEO Elon Musk, while reaffirming that production of its Cybercab robotaxi remains on track for this year.

The move reinforces Musk’s strategy to pivot Tesla from a pure electric vehicle maker into an AI and robotics company—a narrative that underpins much of Tesla’s roughly $1.5 trillion valuation. The confirmation on Cybercab production was also crucial for investor confidence, as Tesla has previously missed several self-driving and robotaxi timelines.

However, the ambitious roadmap—including Cybercabs, humanoid robots, Semi trucks, and the Roadster—will significantly increase spending. Capital expenditures are expected to exceed $20 billion this year, more than double the $8.5 billion spent in 2025, Chief Financial Officer Vaibhav Taneja said.

Tesla shares initially jumped about 3.5% in after-hours trading, but gains narrowed to 1.8% after investors digested the higher capex outlook.

A transition phase for Tesla

Tesla is now entering a phase where investors are being asked to back future revenue from autonomy and robotaxis, rather than near-term vehicle sales recovery, said Thomas Monteiro, senior analyst at Investing.com.

“That makes rollout metrics—not deliveries—the most important leading indicator from here,” Monteiro said.

Musk said he expects fully autonomous vehicles to be operational in a quarter to half of the U.S. by the end of this year, though he has previously revised similar projections. Earlier goals to reach half the U.S. population by the end of 2025 were later narrowed to deployment in eight to 10 major metropolitan areas, targets Tesla has yet to meet. Its robotaxi service remains limited to Austin, Texas.

EV business under pressure

Tesla’s core EV business, which still generates most of its revenue, continues to face pressure as competitors launch newer, often lower-priced models. The expiration of a U.S. electric vehicle tax incentive has added to the strain, while Musk’s political rhetoric has alienated some customers.

On an analyst call, Musk said Tesla will stop selling the Model S and Model X, once-flagship vehicles that now contribute only a small share of revenue. Factory space freed up by the move will be repurposed for robot production, he said.

Tesla’s revenue fell about 3% to $94.83 billion in 2025, marking its first annual revenue decline. The company has relied heavily on discounts and incentives to support volumes.

Wall Street expects Tesla to deliver 1.77 million vehicles in 2026, an 8.2% increase, according to Visible Alpha data.

Margins improve, energy shines

Adjusted earnings per share of 50 cents in the fourth quarter beat expectations of 45 cents, according to LSEG, though net income fell 61% to $840 million.

Despite softer sales, Tesla’s automotive gross margin, excluding regulatory credits, improved to 17.9%, up from 13.6% a year earlier and well above estimates of about 14.3%.

Tesla’s energy generation and storage business emerged as a bright spot. Revenue in the segment rose 25.5% to a record $3.84 billion in the December quarter, surpassing analysts’ estimates of $3.46 billion, driven by strong demand for grid-scale battery systems.

AI bet and chip concerns

Investor focus has increasingly shifted to Tesla’s autonomy and robotics ambitions. A Tesla investment in xAI had long been anticipated, with analysts saying the automaker stands to benefit from xAI’s advanced models and rising valuation.

“With Tesla’s legacy EV business slowing, investors can participate in the scorching-hot AI boom,” said Andrew Rocco, stock strategist at Zacks Investment Research.

Musk, however, warned of a potential global shortage of memory chips, saying Tesla may need to build its own chip manufacturing facility to avoid supply-chain constraints—especially amid geopolitical risks.

Robotaxis, robots, and regulation

Cybercabs—designed without steering wheels or pedals—will eventually be added to Tesla’s robotaxi fleet and sold to consumers. Musk acknowledged last week that initial production of both the Cybercab and the Optimus humanoid robot would be slow, with meaningful Optimus volumes unlikely before late 2026.

Regulatory hurdles remain significant, particularly for the Cybercab’s unconventional design, which does not comply with current U.S. vehicle standards.

Despite the uncertainties, Tesla shares rose about 11% in 2025, buoyed in part by an $878 billion pay package for Musk, tied to ambitious operational and valuation milestones—reassuring investors of his long-term commitment to the company.