Tesla Invests USD 2 Billion in xAI, Confirms Cybercab Production This Year

Tesla announced a USD 2 billion investment in Chief Executive Officer Elon Musk’s artificial-intelligence organisation xAI. The company also reiterated that its Cybercab robotaxi production plans are on track for this year. This investment supports Musk's strategy to transition Tesla from an electric vehicle manufacturer to an AI organisation.

Credit: UNSPLASH

This strategic shift is seen as crucial for the company's approximately USD 1.5 trillion valuation. Tesla’s ambitious plans for Cybercabs, humanoid robots, Semi trucks, and Roadster sports cars will necessitate substantial factory investments. Chief Financial Officer Vaibhav Taneja stated capital expenditures would exceed USD 20 billion this year, more than double the USD 8.5 billion spent in 2025.

Credit: UNSPLASH

Tesla shares initially rose about 3.5% in after-hours trading. However, gains pared to 1.8% following the release of capital expenditure details. Senior Analyst Thomas Monteiro of Investing.com described Tesla as "entering a transition phase," asking investors to back potential revenue from self-driving software and robotaxis.

Monteiro suggested that "rollout metrics - not deliveries - (are) the most important leading indicator from here." Musk stated he expects fully autonomous vehicles in a quarter to half of the United States by the end of this year. He had previously aimed for robotaxis to reach half of the U.S. population by the end of 2025, later narrowing it to top metropolitan areas.

Tesla has not met these past targets, currently offering a limited robotaxi service in Austin, Texas. The company’s core electric vehicle business, which accounts for most revenue, is under strain from competitive newer models and the conclusion of a U.S. tax incentive for EVs.

Musk informed analysts that Tesla would discontinue selling its Model S sedans and Model X SUVs. These vehicles, once flagships, now represent a small fraction of revenue, and their factory space will be reallocated for robot production.

Tesla’s revenue declined about 3% to approximately USD 94.83 billion in 2025, marking its first annual decrease. To maintain volumes, Tesla has relied on discounts, incentives, and lower-priced versions of its best-selling models. Wall Street anticipates 1.77 million vehicle deliveries in 2026, an 8.2% increase, according to Visible Alpha data.

Adjusted earnings per share in the fourth quarter reached USD 0.50, surpassing Wall Street targets of USD 0.45. Net income, however, fell 61% to USD 840 million for the quarter. Despite the sales decline, automotive gross margin, excluding regulatory credits, improved to 17.9% from 13.6% a year prior, exceeding expectations of 14.3%.

The energy generation and storage business showed strong performance, with revenue rising 25.5% to a record USD 3.84 billion in the December quarter. This surpassed analysts' estimates of USD 3.46 billion, driven by demand for grid-scale batteries.

Investors are increasingly scrutinising Musk’s push into self-driving technology and robotics, seeking proof that autonomy is moving from promise to product. Analysts anticipated Tesla’s xAI investment, believing the company would benefit from advanced models and growing valuation.

Stock Strategist Andrew Rocco of Zacks Investment Research noted, "With Tesla's legacy EV business slowing, Tesla investors can take part in the scorching hot AI boom." However, Musk warned of an impending memory chip shortage that could hamper Tesla's plans.

He suggested building a chip-making plant to protect against supply chain limitations, stating, "If we don't do that, we're just going to be fundamentally limited by supply chain." He added, "In a worst-case geopolitical situation it would be quite a severe situation."

The rapid expansion of artificial-intelligence infrastructure by U.S. technology companies has absorbed much of the world's memory-chip supply. This has elevated prices as manufacturers prioritise components for higher-margin data centres.

Investors are also seeking clearer timelines for the purpose-built Cybercab, which is designed without a steering wheel or pedals. Cybercabs will join the robotaxi service, currently using Model Y vehicles, and will also be available for consumer purchase.

Musk stated last week that initial production of the Cybercab robotaxi and humanoid robot Optimus would be "agonisingly slow" before gradually accelerating. He added that significant Optimus production volume is not expected until the end of 2026.

Regulatory hurdles exist for Cybercab production due to its design lacking a steering wheel or pedals, which contrasts with current federal standards. Musk has consistently predicted rapid progress for Full Self-Driving for nearly a decade but has not provided firm dates for regulatory approval or broad unsupervised deployment.

Tesla’s shares increased by approximately 11% in 2025. A USD 56 billion pay package for Musk, which was voided by a Delaware court but is linked to ambitious operational and valuation milestones, also remains a point of interest.

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• Tesla invests USD 2 billion in xAI and confirms Cybercab robotaxi production will begin this year.

• Capital expenditures are projected to exceed USD 20 billion this year, over double the 2025 figure, supporting AI and robot initiatives.

• Tesla's core EV business faces competitive strain and a decline in 2025 revenue, leading to the discontinuation of Model S and X vehicles.

Source: REUTERS