Tesla Q4 earnings recap: Musk talks $2 billion xAI investment, Optimus 3 — and makes shock announcement

Tesla's stock is up around 1.77% after hours as Musk signs off the call.

Musk once again cites geopolitical risks as a constraint on Tesla's growth. He says a lot of companies are "asleep at the switch with regards to geopolitical risks."

Musk also pleaded for other companies to build more refineries and infrastructure. Tesla does so because it has to, he and the CFO say.

Musk called Tesla's Corpus Christi, Texas-based lithium refinery and Austin-based dry-electrode cell plant "more advanced than anything in the world." Still, he says he doesn't want to be the only company building the facilities.

"Please, for the love of God, and all that is holy, please build this," he says. "Build this stuff."

Musk says China is Tesla's most formidable competitor in humanoid robots.

"We don't see significant competitors outside of China," he says.

Musk says Tesla is looking good on chip supply for roughly the next three years — but beyond that, it's vital to secure chip supply for Optimus and other products in case geopolitical factors constrain availability.

Tesla needs to "figure out some game plan" to avoid supply constraints after three-plus years, Musk says.

The CEO adds that he hopes American factories will start building more silicon.

CFO Vaibhav Taneja says the company's framework agreement is in the spirit of finding "efficient ways for others to help us."

Musk says the $2 billion investment into xAI was "what shareholders told us to do."

Tesla's CFO says the idea of doing a TeraFab for chip production, which Musk talked about moments ago, would not be factored into Tesla's planned $20 billion-plus capex spend for 2026.

Musk revisits the idea of the TeraFab — Tesla's idea of a chip manufacturing facility — as the EV maker seeks to scale up its humanoid robot and autonomous vehicle programs.

The CEO says his company needs to build a factory that integrates "logic, memory, and packaging" and that Tesla will be "fundamentally limited by supply chain" if it doesn't.

Tesla's stock price has inched a bit higher since dipping earlier — it's now trading up 2.3% after hours.

Musk says the big bottleneck for his company's growth in the next three or four years will be chip production. The CEO also adds that there needs to be enough "AI logic and enough memory and RAM for our volume."

Musk points out that the company needs to be wary of geopolitical risks that could constrain the growth of Tesla's TeraFab, the company's in-house chip manufacturing facility.

Musk says getting Tesla's AI5 chip done is "critical," and he's been spending "pretty much every Saturday on this, and every Tuesday."

"If I'm spending my Saturdays on something, it's going to be something pretty important," Musk adds. "I do think AI5 will be a very good chip, and I feel quite confident about the design at this point."

"We're not selling the chips outside of Tesla," he said. "We need them."

The AI6 chip will "aspirationally" follow AI5 "in under a year," and will be a big leap.

Musk says Robotaxi's fleet is at over 500 vehicles between Austin and the San Francisco Bay Area. He projects that the number will "probably double" every month.

Asked which factory tasks Tesla's Optimus robot is currently performing in the company's factories, Musk says it's not being used in any "material way."

The CEO says Optimus is still in the "R&D phase" and that the robot is only in the factory to learn.

Tesla executives said the Cybertruck is "selling more than any other electric truck out there," and pointed out that other competitors are pulling back from EV truck investments.

Musk says Tesla will eventually transition the Cybertruck production line to a "fully autonomous line." Musk also hints at an eventual fully autonomous Cybertruck.

Tesla should be able to show off the much-delayed Roadster 2.0 in April, Musk says. "It's going to be something out of this world," he teases.

Musk jokes about Tesla's confusing names for its autonomous vehicles and service. He notes that it could get worse, as Tesla isn't allowed to call its autonomous cars a "cab" or a "taxi" in some states. That's confusing, he says, considering Tesla's purpose-built AV is called the Cybercab.

Tesla's CFO says the company is spending a lot of money as it ramps up production of its self-driving capabilities.

"This year is going to be a huge investment year from a capex perspective," the CFO says, "in excess of $20 billion."

Tesla says it's currently hiring on-the-ground employees as it rolls out Robotaxis. Some of these new hires are likely in San Francisco and Austin, where it has rolled out some self-driving taxis.

Tesla's share price is up around 1.5% after hours, dipping slightly in the wake of the Model S and X discontinuation news.

CFO Vaibhav Taneja says Tesla saw active FSD subscriptions improve, with nearly 1.1 million customers.

The CFO reiterated Tesla's goal to shift its business model for its advanced driver assistance system to a subscription-based model.

(Good luck trying to top Musk's surprise Model X and S announcement.)

Tesla will have self-driving, ride-hailing cars in several cities across the US, Musk predicted.

He said consumers should expect to see the cars in "dozens of major cities by the end of the year."

"We'll probably unveil Optimus 3 in a few months," Musk says.

Production will be a "stretched out S-curve," he adds, because it's an entirely new supply chain for Tesla.

"It's going to be a very capable robot," Musk says.

Musk just made a huge announcement — Tesla is discontinuing the Model S and Model X, its highest-end sedan and SUV. Production will end next quarter, Musk says.

"It's kind of sad," Musk said, "It's time to bring the S and X program to an end."

The models deserve an "honorable discharge," he added.

The CEO predicts major investments for Tesla's future, including factories, an "entire supply chain of batteries," and AI chips.

He mentions Tesla's new mission statement and says we're headed for a world of "amazing abundance," with universal high income — not just universal basic income.

CEO Elon Musk and CFO Vaibhav Taneja are on the call and will begin by reading through prepared remarks on the quarter before answering some live questions from analysts.

The after-hours gains have largely held steady since the earnings report was released.

Tesla shared in its shareholder deck more target cities for its Robotaxi rollout in the first half of 2026: Dallas, Houston, Phoenix, Miami, Orlando, Tampa, and Las Vegas.

Business Insider previously reported that the company had posted more than 40 job openings related to logistics and operations for its Robotaxi service.

Tesla manufactures and sells energy storage systems — called Megapacks. That business helped bring in over $3.8 billion in Q4 revenue, a 25% increase over the year-ago period.

"Total gross profit rose, both sequentially and year-over-year, to a record $1.1 billion, marking the fifth consecutive record quarter. We plan to begin Megapack 3 and Megablock production at Megafactory Houston in 2026," Tesla says in the earnings release.

Tesla expects its energy business will continue to grow, especially as AI data centers put more stress on the US grid. The company said it's bringing "affordable and rapidly deployable energy capacity ahead of expected sustained demand growth for electricity."

"Energy storage remains a bright spot," Steve Man, Bloomberg Intelligence's senior automotive industry analyst, tells Business Insider.

Tesla says active subscribers of its (Supervised) Full Self Driving software — which is becoming subscription-only after February 14 — were up 38% year over year in the fourth quarter, to 1.1 million.

We've got movement on Roadster production! Tesla says production will begin in the first half of the year (it's currently listed as in "design development" in the earnings release).

Meanwhile, production of Cybercab and the Tesla Semi will ramp up in the first half of the year.

"Preparations continue in North America for the production ramps of Tesla Semi and Cybercab, both commencing 1H26, and production of the next-generation Roadster," Tesla says.

"Though small in EPS, Tesla's beat was a quality beat, with margins showing signs that the price compression due to higher competition and declining brand value perception is slowly fading, particularly as demand stabilizes in higher consumer power markets," wrote Investing.com senior analyst Thomas Monteiro.

"This is key heading into what looks like a heavier spend year: the step-up in gross margin and operating margin effectively rebuilds "firepower" to fund Tesla's 2026 agenda—doubling on-site compute in Texas, standing up Megafactory Houston output (Megapack 3/Megablock), and installing first-gen Optimus production lines—without having to lean as hard on price to drive volume," he added.

"Ultimately, the next re-rating hinges less on incremental quarterly beats and more on whether autonomy can translate into scalable, repeatable economics before the core auto business fully re-accelerates," Monteiro concluded.

In the earnings deck, Tesla says it plans on unveiling the third-generation Optimus humanoid robot, including a newly redesigned hand, in the first quarter. The company says its new version is ready for mass production.

Production is expected to start "before the end of 2026" — and Tesla said the supply chain is ready to go.

Tesla agreed to invest $2 billion into xAI, and is also entering into a "framework agreement" with Musk's AI company, which also owns the X social network. Grok is developed by xAI.

The investment is part of xAI's January Series E funding round, which raised $20 billion from firms such as Valor Equity Partners, Stepstone Group, Fidelity Management & Research Company, and Qatar Investment Authority.

But the framework agreement means Tesla investors can expect additional collaboration between the AI company and carmaker.

For drivers, Tesla says the agreement could improve self-driving, adding HOV-lane access for carpools and better in-car video games. The deal will also help Tesla's robotics teams in manufacturing.

FOURTH QUARTER RESULTS

• Adjusted EPS 50c vs. 73c y/y, estimate 45c (Bloomberg
  Consensus)
• EPS 24c vs. 66c y/y
• Revenue $24.90 billion, -3.1% y/y, estimate $25.11 billion
• Gross margin 20.1% vs. 16.3% y/y, estimate 17.1%
• Operating income $1.41 billion, -11% y/y, estimate $1.32
  billion
• Free cash flow $1.42 billion, -30% y/y, estimate $1.59 billio
• Capital expenditure $2.39 billion vs. $2.78 billion y/y,
  estimate $2.83 billion

Tesla is pushing the Optimus humanoid robot toward its third generation, built on more advanced hardware, including the redesigned AI5 chip. Business Insider's Grace Kay has reported that Tesla planned to start training the bots in its Texas factory by February.

Still, Tesla has encountered several challenges in developing the humanoid robot. Musk said building a working robot hand is "an incredibly difficult engineering challenge."

Musk has also cast Optimus as a potential replacement for everyday labor in homes and factories. He has said the robot could eventually handle routine tasks such as folding laundry, carrying heavy objects, and stirring boiling water.

Wall Street analysts want to know more about the company's self-driving plans.

"Management needs to lay out a credible timeline for when robotaxi will transition from testing to a fully commercial product similar to Waymo today," Seth Goldstein, analyst at Morningstar, told Business Insider. "If they only provide high-level statements about their optimism for the future, then the market will likely focus on Tesla's declining financial results and we could see the stock decline following earnings."

The automaker is nearing a cluster of consequential self-imposed deadlines for products positioned as its future profit drivers.

Business Insider parsed through previous earnings calls, CEO Elon Musk's podcast interviews, and a steady stream of updates from executives on X to compile the list of its promised road map. We found five major updates Tesla has said it will deliver in 2026, spanning vehicles, autonomy, and robotics — all central to Musk's vision for the company's next phase.

Read full story

Tesla has been talking about building a fully autonomous, steering-wheel-free car for years. Then it unveiled the Cybercab. The first units are expected to roll out of the automaker's Texas gigafactory in April, Elon Musk says.

Still, only a handful of the two-door self-driving coupes are expected to hit the roads, Musk said. Last Tuesday, he wrote on X that the car's initial production will be "agonizingly slow" in the first couple of months.

Eventually, he said the factory will churn out 2 million copies each year.

2025 was a difficult year for Tesla's EV business, with annual sales declining for the second year in a row.

In the US, Tesla was hit hard by an industry-wide slump in EV sales following the end of the $7,500 tax credit in September.

Things aren't much better elsewhere. Tesla's European sales fell nearly 27% last year, according to industry data released on Tuesday, while the automaker also saw its sales decline in China, where its mass-market Model 3 was outsold for the first time by Xiaomi's SU7.

For years, the federal government has fined automakers that fail to meet vehicle emissions targets. One way car companies avoided those fines was by buying regulatory credits from firms like Tesla with energy-efficient products. Paying for the credits was cheaper than the fines.

Much of that regulatory framework unraveled when President Donald Trump signed the Big, Beautiful Bill Act into law — legislation that Elon Musk called a "disgusting abomination." The law ended fines for car companies that didn't produce more fuel-efficient vehicles.

The regulatory credit sales had been a boon for Tesla's all-electric vehicle lineup. Since 2010, it's made billions by selling its leftover credits to other automakers.

Now, only a handful of states with their own emissions rules are generating credit sales. This is the first full quarter in which the federal sale of credits is largely off the table for Tesla.

Elon Musk is no fan of lidar. He's called the sensing technology — which uses a dome-like nodule mounted on a car to measure distances with pulsing lasers — "lame," a "fool's errand," and "expensive and unnecessary."

Nearly every other major automaker with autonomy ambitions disagrees.

Waymo, Alphabet's self-driving unit, has long relied on lidar sensors mounted on its vehicles. Amazon's autonomous startup Zoox uses them too. Mercedes-Benz, BMW, Volvo, Audi, GM, Toyota, Ford, Hyundai, and Rivian all invest in the technology, as does Aurora, the self-driving trucking startup.

Ditching lidar helps Tesla keep self-driving costs down, but its embrace of camera- and sensor-only systems has raised concerns among some drivers, who cite situations like heavy rain or extreme bright sunlight that can lead to issues.

Today's earnings call will serve as a litmus test for Tesla's push toward more affordable vehicles.

In October, the automaker launched two "Standard" trims that strip out a suite of features from its top-selling models, shaving about $5,000 off the previous base prices. The Model 3 Standard starts at $38,630, while the Model Y Standard starts at $41,630.

Tesla doesn't break out sales by each model, let alone by trim. (It lumps Model Y and Model 3 sales together and its other models, including the Cybertruck, in an "Other" category.)

The standard trims were announced after Elon Musk backed away from previous commitments to build a $25,000 car. In an October 2024 earnings call, he called the idea of making a budget Cybercab with a steering wheel and pedals "silly."

Last July, Musk alerted investors that Tesla would likely have a "few rough quarters" of car sales.

The latest deliveries and production update, released on January 2, reaffirmed that the company isn't out of the woods yet. Tesla delivered 418,227 cars in the last three months of 2025, a 15% drop from a year earlier.

Much of the quarterly drop was expected. The federal government's $7,500 tax credit for new EV buyers expired in the third quarter, prompting some Tesla shoppers to pull forward purchases. However, even with that Q3 bump, Tesla's full-year vehicle deliveries fell 8.6% compared with 2024.

Tesla recently restarted development of Dojo 3, its in-house AI training supercomputer — but with a twist. Instead of only training self-driving cars, Musk said the new system is aimed at "space-based AI compute."

In August, Tesla shut down Dojo and disbanded the team, planning to rely on chips from Nvidia and other partners instead. But on January 18, Musk posted on X that Tesla's Samsung and TSMC-built AI5 chip was now "in good shape," making it possible to resurrect the project.

Elon Musk first revealed Tesla's second-generation Roadster — a two-door electric supercar with a blistering 1.9-second 0-60 mph time — in 2017. While the company has collected thousands of $50,000 reservations for the racer, every earnings deck since 2020 has listed the vehicle as in "development."

Some customers are getting frustrated with a lack of progress, with several high-profile reservation holders like Sam Altman and Marques Brownlee canceling their reservations. But there's recent momentum building around the Roadster, Business Insider's Grace Kay reported

During an interview with Joe Rogan, Musk said the car's next reveal will be on April Fools' Day. He added that the car will include parts built by SpaceX and teased that it might be capable of some fancy tricks, calling it "the most memorable product unveil ever."

The CEO typically avoids making product announcements during earnings calls, so we likely won't get a major reveal today. But we'll be checking how the model is listed on the earnings deck later today.

Chinese EV maker BYD sold more cars than Tesla last year — and it wasn't even close.

The Shenzhen-based automaker delivered more than 2.26 million battery-electric cars to global consumers. Tesla sold 1.65 million in the same time.

"The story is that 2025 marks the year Tesla lost the BEV crown to BYD," Howard Yu, a professor at IMD Business School, wrote to Business Insider. "And not by a little. It's a 620,000-unit gap that didn't exist two years ago."

Tesla's best-selling cars — the Model Y and the Model 3 — both received facelifts in early 2025. The design updates included LED light bars for the headlight and taillight, sharper body angles that increased battery range, and more ambient lighting in the interior.

In the auto industry, design refreshes typically trigger months of growing sales. For Tesla, however, sales have continued to slide.

Musk is known for his optimistic timelines, and Tesla's robotaxi rollout is no exception.

The billionaire predicted that by the end of 2025, Tesla's robotaxi service would be operating in 8-10 metro cities, cover half the US population, and have 500 vehicles on the road in Austin.

Tesla didn't hit any of those targets. It did, however, remove safety drivers from its vehicles in Austin this month. Tesla is planning to launch robotaxis in multiple US cities this year, and investors will be watching the earnings call closely for any updates.

Analysts at JPMorgan lowered their EPS estimate for Tesla to $0.43 from $0.48 after the carmaker missed its fourth-quarter delivery target. Tesla recently reported a 16% year-over-year drop in deliveries for the fourth quarter.

"The -16% y/y decline in 4Q25 deliveries is the worst ever for Tesla," analysts wrote in a recent client note, adding that Tesla's stock price looked "increasingly divorced" from the company's "rapidly declining earnings outlook."

The bank reiterated its "underweight" rating on Tesla and $150 price target, implying 65% downside from the stock's current levels.

Wells Fargo said it remains pessimistic about Tesla's business fundamentals. The bank said it believed the company would continue to see "moderating delivery growth" this year, citing lower demand for Teslas and diminishing returns from the company's price cuts.

"2026 Fundamentals look weak, leaving no support if Robotaxi/Optimus disappoint," analysts wrote in a client note.

The bank reiterated its "underweight" rating on the stock but lifted its price target to $130 a share, citing updated growth estimates for Tesla's car business. The price target implies 70% downside from Tesla's current levels.

Tesla's sales in the US, China, and Europe fell sharply in 2025, and in January, it reported its second consecutive annual sales decline. Still, the automaker's stock has jumped to near record highs, boosted by optimism around self-driving and AI.

"The market doesn't seem to place much emphasis on Tesla's current automotive business, even as deliveries are declining," Seth Goldstein, an analyst at Morningstar who closely monitors Tesla, told Business Insider.

Tesla stock already appears largely priced in the bull case, which relies on the success of the company's robotaxi business and Optimus, Tesla's humanoid robot. But returns for those projects may not be realized in the near future, UBS analysts said.

"So in our view, given a declining valuation for TSLA's EV business, the market is already assigning a higher and higher value to the AI ventures. While the TAM for these ventures may be large, they could also be further out," the bank wrote.

UBS issued a "sell" rating and a $247 price target, implying 43% downside from current levels.

Tesla's progress on AI has been "slower than anticipated," Oppenheimer said.

The firm pointed to continued progress Tesla would need to make before beginning the production of Optimus, and the expectation that the company will roll out robotaxis in more cities across the US this year.

"We see downside risk to 2026 consensus as we continue to anticipate delays in Robotaxi performance and Optimus ramp in context of a challenging EV demand environment for TSLA," the firm wrote.

Analysts issued a "perform" rating on Tesla and trimmed their fourth-quarter revenue estimates from $24.08 billion to $23.7 billion.

Cantor analysts highlighted potential catalysts that could boost Tesla's stock down the line, like the company rolling out full self-driving in China and Europe, expanding its robotaxi presence across the US, and launching Optimus commercially in 2027.

The firm's analysts reiterated its "overweight" rating on the stock and set a $510 price target, implying 17% upside from Tesla's current levels.

Wedbush, a longtime Tesla bull, remains optimistic about Tesla's AI and robotics projects.

The research firm said it believed Tesla could hit a $2 trillion valuation in the next year as the company begins "full scale volume production" of some of its autonomous and robotics products.

"We believe Tesla will own ~70% of the global autonomous market over the next decade as no other company can match the scale and scope of Tesla coupled with its broadening AI footprint," a team led by Dan Ives wrote in a note.

The firm reiterated its "outperform" rating and issued a $600 price target on Tesla, implying 38% upside from current levels.

Fourth Quarter

• Adjusted EPS estimate 45c (Bloomberg Consensus)
• EPS estimate 34c
• Revenue estimate $25.11 billion
• Gross margin estimate 17.1%
• Operating income estimate $1.32 billion
• Free cash flow estimate $1.59 billion
• Capital expenditure estimate $2.83 billion

Source: Bloomberg data