Tesla is making its biggest strategic pivot since launching the Model S. Here's why ending production of its most iconic vehicles to manufacture humanoid robots signals a seismic shift in the company's identity—and the entire robotics industry.
After more than fourteen years of production, Tesla is pulling the plug on the Model S. The company announced on its Q4 2025 earnings call that both the Model S sedan and Model X SUV will cease production to free up manufacturing capacity at its Fremont, California factory—not for a new electric vehicle, but for Optimus humanoid robots.
"It is time to bring the S and X programs to an end and shift to an autonomous future," Elon Musk declared during the call. "That is slightly sad," he added, acknowledging the end of an era.
But sad or not, this represents one of the most dramatic strategic pivots in automotive history. Tesla is walking away from the vehicle that proved electric cars could work—the car that created Tesla's empire—to chase an unproven humanoid robot market where, by Musk's own admission, zero Optimus robots are currently doing "useful work" in Tesla's factories.
The End of an Era: Model S and Model X Discontinued
The Model S wasn't just any car—it was arguably the most important automobile of the 21st century. Before the Model S arrived in 2012, electric vehicles were slow, impractical, and appealing only to environmental guilt-trippers. Tesla's sedan changed everything. As The Atlantic put it, the Model S proved "EVs can work, and ordinary people might actually want one."
The Model S pioneered over-the-air software updates, turning cars into upgradeable gadgets. It introduced Autopilot, laying the groundwork for autonomous driving technology. It turned Tesla into a tech company rather than just an automaker, with a stock price more reminiscent of Silicon Valley than Detroit.
But here's the cold reality: the Model S became irrelevant. More than 97% of Tesla's 406,227 vehicle deliveries in Q4 2025 were Model 3 and Model Y vehicles. The S, X, and Cybertruck combined accounted for fewer than 12,000 units—less than 3% of sales. In Tesla's financial reports, these once-flagship vehicles are now lumped under "Other Models."
Rather than continue pouring resources into declining luxury EVs, Tesla is converting those production lines for something Musk believes will be far bigger: robots that walk, talk, and work like humans.
Inside the Fremont Factory Conversion
The Fremont factory, Tesla's original production facility, is about to undergo its most significant transformation since Tesla acquired it from Toyota and GM in 2010.
According to Tesla's shareholder update, the company plans to unveil the Gen 3 version of Optimus in Q1 2026, featuring major upgrades including a new hand design. More importantly, this Gen 3 version is described as "the first design meant for mass production."
Tesla's stated goal is ambitious: production capacity of 1 million robots per year, with production starting before the end of 2026.
To put that in perspective, Tesla produced about 1.79 million vehicles globally in 2025. They're essentially building production capacity that could match half their entire vehicle output—but for robots.
The Credibility Problem: Musk Admits No Robots Are "Doing Useful Work"
Here's where the story gets complicated.
On the same earnings call where Musk announced the factory conversion, he made a striking admission that directly contradicts years of Tesla's own claims.
"Well, we are still very much at the early stages of Optimus. It's still in the R&D phase," Musk said. "We have had Optimus do some basic tasks in the factory. But as we iterate on new versions of Optimus, we deprecate the old versions. It's not in usage in our factories in a material way."
Let's walk through what Tesla has said previously:
- June 2024: Tesla's official account claimed the company had "2 Optimus bots performing tasks in the factory autonomously"
- June 2024: Musk predicted 1,000 to 2,000 robots working in factories by 2025
- January 2025: Musk stated Tesla's "normal internal plan calls for roughly 10,000 Optimus robots to be built this year"
Now, one year later, the number doing useful work is zero. When asked during the earnings call how many Optimus robots Tesla actually has, Musk didn't answer.
The Competition Reality: China Already Won Round One
While Tesla restructures for its robot ambitions, China has already established commanding market dominance.
Nearly 90% of all humanoid robots sold globally in 2025 were Chinese. Six of the highest-selling companies in the sector came from China.
Here are the 2025 unit sales:
- Unitree: 5,500 units (China)
- Agibot: 5,168 units (China)
- Figure AI: ~150 units (USA)
- Tesla: ~150 units (USA)
That's right: two Chinese companies each outsold Tesla's entire 2025 production target of 5,000 units—a target Tesla failed to meet.
China now has over 150 robotics companies actively developing humanoid robots, compared to roughly 20 in the United States. "China is very good at AI, very good at manufacturing, and will definitely be the toughest competition for Tesla," Musk acknowledged at Davos.
For buyers comparing options today, the Tesla Optimus vs Unitree G1 comparison shows just how competitive the pricing landscape has become.
What This Means for Optimus Production Timeline
Based on Tesla's announcements, here's the realistic timeline:
- Q1 2026: Unveiling of Optimus Gen 3, the first mass-production-ready design
- End of 2026: Production begins, though no clarity on volumes
- Late 2027: First sales to general public (Musk's stated target)
- Long-term: Eventual capacity of 1 million units per year
However, Tesla's track record on robotics predictions suggests significant skepticism is warranted. The company promised 10,000 robots by end of 2025 and likely produced a few hundred.
Market Implications: Why Tesla Sees More Upside in Robots Than Luxury EVs
The math behind Tesla's decision reveals why this pivot makes strategic sense—at least on paper.
The luxury EV segment is dying for Tesla. Model S and X combined represent less than 3% of sales, with declining margins and increasing competition from legacy automakers and Chinese brands like BYD, which recently overtook Tesla as the world's largest EV seller.
Meanwhile, Morgan Stanley projects the global humanoid robot market could reach $38 billion by 2035 and $5 trillion by 2050. Even a fraction of that market would dwarf Tesla's entire current vehicle business.
Dan Ives of Wedbush Securities calls Tesla "the best physical AI company in the world" and predicts Tesla could reach a $2 trillion market cap by end of 2026 based primarily on FSD and robotics growth.
For context on where the overall humanoid robot market stands, our best humanoid robots comparison tracks all major players and their production status.
The Technology Challenge: What Optimus Actually Needs to Work
Building humanoid robots at scale requires solving multiple simultaneous challenges:
1. Actuators and Motors: Tesla has invested heavily in custom actuator design to reduce costs. Chinese manufacturers like Unitree use commodity servo motors to hit lower price points.
2. AI and Computer Vision: Optimus shares architecture with Tesla's FSD system, which is still not approved for fully autonomous operation.
3. Manipulation: Tesla's new Gen 3 hand design addresses one of humanoid robotics' hardest problems. Current robots struggle with dexterous manipulation tasks.
4. General-Purpose Capability: Musk's vision of robots doing everything from factory work to caring for elderly people requires true general-purpose AI—a capability that remains theoretical.
Our humanoid robot pricing guide breaks down how these technical factors drive the massive price variations across the market.
The Bottom Line
Tesla's decision to end Model S and Model X production represents more than retiring two car models. It's a fundamental reorientation of a company that changed the automotive industry, now betting it can change the robotics industry too.
The Model S proved something that's now easy to take for granted: EVs can work, and ordinary people might actually want one. Now Tesla is attempting to prove something far more uncertain: that humanoid robots can work, and ordinary people (or at least ordinary factories) might actually want them.
Whether this pivot succeeds depends on whether Tesla can:
- Actually mass-produce working robots (something they haven't demonstrated yet)
- Compete with Chinese manufacturers who already have 90% market share
- Develop AI capable of genuine general-purpose work
- Do all this faster than well-funded competitors like Figure, Agility, and dozens of Chinese startups
Musk has always been able to drive enthusiasm for products before they generate revenue. The Model S proved he can deliver. Optimus will prove whether that ability scales to the next frontier of technology—or whether Tesla is betting the farm on a future that's further away than the stock price suggests.
One thing is certain: the most important car of the 21st century is gone. What replaces it will define not just Tesla's future, but potentially the future of work itself.
