| Oh my… |
| These read like an obituary. |
| It must be bad. It must be far worse than we thought. |
| Tesla is forced to shut down two of its most iconic product lines, the Model S sedan and Model X SUV. |
| And these aren't rumors… |
| They were announced on Tesla's earnings call last night for its fourth quarter and full year 2025 results. |
| And it actually appears worse than many have realized… |
- Tesla's annual sales in 2025 are not only lower than 2024… they are also about $2 billion lower than 2023 sales.
- Tesla's net income hasn't been this low since 2021 – it's actually lower than 2021's net income.
- Tesla's earnings per share declined 42% year on year.
- And Tesla's forecasted free cash flow for 2026 is less than one-third of 2025 numbers.
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| Worse yet, the industry's electric vehicle share as a percentage of total vehicles sold in Q3 of 2025 appears to have peaked at 10.5%… and had plummeted to just 5.8% in Q4. A bad omen for EVs? |
| What in the heck is going on? |
| Is this a company in decline? Are electric vehicles on the decline? |
| The Model S and Model X are profitable product lines. They are also incredible cars. |
| Why in the world would Tesla shut them down? And it's happening so quickly! |
| Musk said that the production lines are being shuttered in the second quarter of this year, months from now. So fast! |
| Feels like a rash decision! Musk is chasing his tail! Grasping at straws! |
| Or at least… |
That's what the doubters and decels will have us believe. |
| Optimizing for AI |
| Not. Even. Close. |
| The reality is that while the Model S and Model X product lines were profitable, they were relatively low volume. |
| |
| Source: Tesla |
| Production capacity was around 100,000 units annually. And because they are electric vehicles (car-sized), the production lines take up a lot of space. |
| So, Tesla is going to shut those lines down and convert them to production lines to manufacture Tesla's general-purpose, intelligent humanoid robot – Optimus. |
| Mass production will begin before the end of this year… and capacity will become 1 million robots a year. |
| In other words: Tesla is making space for the future. And the future… is general-purpose intelligent robots. |
| As I have maintained, for almost a decade now, Tesla is not a car company… |
| It is an artificial intelligence company. |
| Its breakthrough artificial intelligence technology is simply embodied in electronics products – like electric "vehicles" (I've called them robots-on-wheels) or humanoid robots. |
| Here's the right framework to think about Tesla's electronics products… |
| They confer an economically valuable and desirable benefit to Tesla's customers. |
| And they are real-world data collection devices, used to accelerate the training of Tesla's artificial intelligence. |
| Exponential Data |
| Take a look at the chart below. |
| It shows exactly how dramatically Tesla's data collection has grown since 2022, using its full self-driving (FSD) software and AI hardware employed in every Tesla. |
| Tesla has now collected data on nearly 7.5 billion miles driven on FSD… and this is on top of more than 9 billion miles collected on its previous software Autopilot. |
| |
| Source: Tesla |
| And we should remember, Tesla's FSD software was foundational to Optimus' software used to navigate the real world. |
| Instead of navigating on four wheels, Optimus navigates on two feet. |
| Tesla announced yesterday that its "fleet" of vehicles around the world collects the equivalent of 500 years of continuous driving every single day. |
| This is precisely why Tesla's FSD is now able to handle all the outlier situations that come up once in a blue moon – because it has seen just about everything possible. |
| For perspective, Tesla now collects more training data every two days than Waymo has cumulatively collected over the last decade.Every two days! |
| Everything that Tesla is doing right now is about AI. |
| Its advancements with its FSD software have enabled the unsupervised robotaxi service, which is already deployed in Austin. |
| Almost 700,000 miles of robotaxi rides have been given between Austin and San Francisco. |
| |
| Source: Tesla |
| Soon, Tesla will be able to remove safety drivers in the San Francisco area, and it will expand to Dallas, Houston, Phoenix, Miami, Orlando, Tampa, and Las Vegas. |
| And here's what I want my readers to understand… |
All of these cities are chosen intentionally, as they are in states that have been supportive of autonomous driving technology. More " robots-on-wheels" on the road… more data collected. |
| And if you can't immediately grok the significance of that… |
| Perhaps the most interesting announcements recently were around Tesla's AI hardware. |
| |
| 50X |
| Tesla is currently building out its Cortex 2 AI supercomputer at its Gigafactory Texas facility. |
| It's doing so to more than double its AI training computational resources. |
| This will be completed in the first half of this year. |
| |
| Source: Tesla |
| And perhaps even more telling is that its next-generation of AI hardware – known as AI5 – will be delivering a 10–12X increase in raw computational power, and ~50X improvement in performance over the current AI4 hardware. |
| 50X improvement. Not 50%. |
| |
| Source: Tesla |
| Cybercab mass production begins in the first half of this year, which – as a reminder – has no steering wheel or gas/brake pedals. |
| These are fully autonomous, level 5, self-driving cars designed for mass public transportation. |
| |
| Cybercab Cold Weather Testing in Alaska | Source: Tesla |
| But the kicker, I mean the real kicker, is all about general-purpose intelligent humanoid robots. |
| The Force Multiplier |
| Tesla will ramp production up to 1 million humanoid units a year… as quickly as it can. |
| The reason is simple: This is a billion-unit-plus market opportunity – worth more than $25 trillion. |
| When we understand this, the decision to shut down the lesser-productive EV lines is a no-brainer. Painful decision, yes, but also the right one for Tesla's future. |
| Musk is optimizing for the future. |
| And yet, the experts are already screaming that Tesla and Elon Musk won't be able to do it. |
| "Despite Elon Musk's remarks, robots won't be 'major' to consumers," wrote Yahoo Finance. |
| Many are already claiming that Musk is nowhere near being able to accomplish what he says he can do. |
| From CBNC… |
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