Tesla pivots to AI as annual profits fall 46%

Tesla is attempting to shift its business focus from being an EV manufacturer to an AI and robotics company. This transition comes as the company’s financial performance faces pressure from declining EV sales. In 2025, Tesla generated $94.8 billion in total revenue, but its annual profits fell 46% year-over-year.

The company’s 2025 revenue was split as follows:

• $69.5 billion came from EV sales and regulatory credits.
• $25 billion came from energy generation and storage, alongside services and other businesses.

To support this pivot, Tesla plans to invest $2 billion into xAI, an artificial intelligence company. The company is also signaling a massive increase in capital expenditure (CapEx), with 2026 spending projected to reach $20 billion. Part of this shift includes ending production of the Model S and Model X—which represent about 2% of Tesla’s sales volume—to focus on producing its Optimus humanoid robots at its factory in Fremont, California.

The broader autonomous vehicle (AV) market remains active. Waymo is reportedly raising a funding round of up to $15 billion, with potential participation from an original equipment manufacturer (OEM). Meanwhile, AV startup Waabi raised $750 million in a Series C round and secured a $250 million milestone capital deal with Uber to support the deployment of 25,000 or more robotaxis (autonomous vehicles operating as a taxi service). In the middle mile (the logistics segment between distribution centers and stores), autonomous trucking startup Gatik AI secured a contract delivering $600 million in revenue over five years, with its trucks operating driverlessly since mid-2025.

Additionally, battery recycling company Redwood Materials raised $425 million in a Series E funding round. Redmond, Washington-based MicroVision bought Luminar’s lidar (remote sensing technology using light) business for $33 million. Rad Power Bikes, which is in a bankruptcy process, reached a deal to sell itself for around $13.2 million, with a total bid value of $14.9 million. The company had previously raised $329.2 million and once held a valuation of $1.65 billion.

Regulatory scrutiny of autonomous vehicles is also active. Waymo is under investigation by the National Highway Traffic Safety Administration and National Transportation Safety Board after the company reported one of its robotaxis struck a child near an elementary school in Santa Monica on January 23. Meanwhile, the San Francisco Police Department is investigating an incident involving a Zoox autonomous vehicle that crashed into the driver’s-side door of a parked car. The incident occurred in the San Francisco Bay Area.

Why it matters

Tesla is attempting to pivot its business model from an EV-centric company to an AI and robotics-focused entity, while simultaneously dealing with declining EV sales and profits.