Tesla Invests $2 Billion in Musk’s xAI as Cybercab Robotaxi Production Remains on Track

Tesla on Wednesday announced a $2 billion investment in CEO Elon Musk’s artificial intelligence startup xAI, while reiterating that production plans for its Cybercab robotaxi remain on track for this year. The move reinforces Musk’s long-term vision of transforming Tesla from a traditional electric vehicle (EV) manufacturer into a full-fledged AI and robotics company.

The announcement offered reassurance to investors at a time when Tesla is navigating slowing EV sales, rising competition, and increasing scrutiny over Musk’s ambitious timelines. While Tesla shares initially jumped about 3.5% in after-hours trading, gains narrowed to 1.8% after the company disclosed significantly higher capital expenditure plans.

Tesla’s Strategic Shift: From EV Maker to AI Powerhouse

Pivoting Toward Artificial Intelligence

The investment in xAI supports Musk’s broader effort to reposition Tesla as an AI-driven company, a narrative that underpins much of its roughly $1.5 trillion valuation. Analysts believe Tesla’s access to xAI’s advanced AI models could strengthen its self-driving software, robotics, and future autonomy-based revenue streams.

An investment by Tesla in xAI had long been anticipated, with market watchers expecting closer integration between Tesla’s Full Self-Driving (FSD) technology and xAI’s growing AI infrastructure.

“With Tesla's legacy EV business slowing, Tesla investors can take part in the scorching hot AI boom,” said Andrew Rocco, a stock strategist at Zacks Investment Research.

Massive Capital Expenditure Planned for 2026

Capex to Cross $20 Billion This Year

Tesla’s aggressive expansion plans will come at a high cost. Chief Financial Officer Vaibhav Taneja revealed that investments related to Cybercabs, humanoid robots, Semi trucks, and the Roadster sports car will push capital expenditures above $20 billion this year, more than double the $8.5 billion spent in 2025.

These factory investments reflect Tesla’s push to scale beyond vehicles into robotics, autonomy, and AI-driven mobility solutions.

Cybercab Robotaxi: Production Plans and Challenges

Production Still on Track

Tesla reiterated that production of the Cybercab robotaxi is expected to begin this year. Cybercabs will eventually join Tesla’s robotaxi service, which currently relies on Model Y vehicles running a version of Full Self-Driving software.

The Cybercab, designed without a steering wheel or pedals, will also be available for consumer purchases. However, regulatory hurdles remain, as current federal vehicle design standards do not yet allow such configurations.

Last week, Musk cautioned that early production of the Cybercab and the humanoid robot Optimus would be “agonizingly slow” before accelerating. On Wednesday, he clarified that Tesla does not expect significant Optimus production volumes until the end of 2026.

Full Self-Driving Rollout and Regulatory Reality

Ambitious Targets, Missed Timelines

Elon Musk reiterated his confidence in Tesla’s autonomy roadmap, stating that he expects fully autonomous vehicles in a quarter to half of the United States by the end of this year.

Previously, Musk had said robotaxis would reach half of the US population by the end of 2025, later revising the goal to deployments in the top eight to 10 metropolitan areas. However, Tesla has yet to meet those targets, with only a limited robotaxi service currently operating in Austin, Texas.

Despite nearly a decade of bold predictions, Tesla has not provided firm timelines for regulatory approval or large-scale unsupervised deployment of Full Self-Driving.

Tesla’s EV Business Under Pressure

Slowing Sales and Rising Competition

Tesla’s core EV business, which still generates the majority of its revenue, continues to face challenges. Rivals have introduced newer models, often at lower prices, while a key U.S. tax incentive for electric vehicles has ended.

Additionally, Musk’s far-right political rhetoric has alienated some customers, further weighing on demand.

On an earnings call, Musk announced that Tesla will stop selling Model S sedans and Model X SUVs, once flagship vehicles that helped establish Tesla’s dominance. The factory space freed up will instead be used to build robots, signaling Tesla’s shift in priorities.

Financial Performance: Mixed Signals

Revenue Declines, Margins Improve

Tesla’s revenue fell about 3% to roughly $94.83 billion in 2025, marking its first annual revenue decline. To protect volumes, the company relied heavily on discounts, incentives, and introduced lower-priced trims of popular models.

Wall Street expects Tesla to deliver 1.77 million vehicles in 2026, an 8.2% increase, according to Visible Alpha data.

Adjusted earnings per share of 50 cents in the fourth quarter exceeded Wall Street expectations of 45 cents, while net income fell 61% to $840 million.

Despite weaker sales, Tesla’s automotive gross margin excluding regulatory credits improved to 17.9%, up from 13.6% a year earlier, and well above analyst expectations of 14.3%.

Energy Storage Emerges as a Bright Spot

Record Revenue Growth

Tesla’s energy generation and storage business continued to outperform, benefiting from strong demand for grid-scale batteries that support renewable energy and stabilize electricity networks.

Revenue from the segment surged 25.5% to a record $3.84 billion in the December quarter, comfortably beating analyst estimates of $3.46 billion.

AI Infrastructure Risks and Chip Supply Concerns

Memory Chip Shortages Loom

Musk warned of a potential shortage of memory chips, which could limit Tesla’s AI and robotics ambitions. He suggested that Tesla may need to build its own chip-making plant to safeguard its supply chain.

“If we don't do that, we're just going to be fundamentally limited by supply chain,” he said. “In a worst-case geopolitical situation, it would be quite a severe situation.”

The rapid expansion of AI infrastructure by US tech giants has already strained global memory-chip supplies, pushing prices higher as manufacturers prioritize data-center components.

Investor Focus Shifts to Rollout Metrics

Transition Phase for Tesla

Tesla is now “entering a transition phase” where investors are being asked to value future revenue from self-driving software and robotaxi services, rather than traditional vehicle sales, said Thomas Monteiro, senior analyst at Investing.com.

“(That) makes rollout metrics - not deliveries - the most important leading indicator from here,” Monteiro said.

Conclusion: Tesla’s High-Stakes Bet on AI and Autonomy

Tesla’s $2 billion investment in xAI underscores a decisive shift toward AI, autonomy, and robotics, even as its core EV business faces slowing growth and intense competition. While financial pressures and regulatory hurdles persist, improvements in margins and strong performance in energy storage provide some cushion.

The success of Tesla’s long-term strategy now hinges on execution—particularly the rollout of Full Self-Driving, Cybercabs, and humanoid robots. As investors increasingly focus on rollout metrics rather than vehicle deliveries, Tesla’s ability to convert bold AI promises into real-world products will determine whether Musk’s vision of an AI-first Tesla becomes reality or remains aspirational.