Elon Musk Turns to Humanoid Robots After EV Sales Slump 9% in 2025 as Model S and Model X Production Ends

Tesla is signalling a major shift in its business strategy. The electric car manufacturer, long renowned for its sleek EVs and rapid acceleration, saw its sales decline by 9 per cent in 2025, according to recent financial disclosures. The company faces rising competition from Chinese manufacturers and the expiry of a key US $7,500 tax credit for electric vehicles. In response, Tesla's leadership is now placing its bets on a new frontier: humanoid robots.

During Tesla's quarterly earnings call, CEO Elon Musk confirmed that production of the Model S and Model X will cease. The Fremont factory space previously dedicated to these models will be repurposed for the production of Optimus humanoid robots. While the Model S and Model X together account for only 3 per cent of Tesla's global deliveries, their discontinuation is not expected to significantly impact overall sales.

From Cars to Robots

The Optimus humanoid robot was first introduced in 2021 as a concept. The initial demonstration featured a person in a costume, which Musk later clarified was not a real robot. He now states that the project is making progress, but mass production remains several years away.

Tesla's long-term aim is to produce one million Optimus units annually—a figure far exceeding the 360,000 vehicles Tesla delivered in 2025. However, these projections are highly ambitious. Tesla's internal target for 2025 was originally set at 5,000 units, then revised to 2,000, with actual production still limited.

Musk has projected that Optimus could be available for sale by the end of 2027, but this depends on overcoming complex hardware and software challenges. He has also suggested that the robot may eventually generate revenues of up to $10 trillion, a figure industry analysts consider highly speculative.

Technical and Market Challenges

Experts warn that humanoid robots face significant technical hurdles. Tasks that humans perform easily—such as grasping a wet glass or tying shoelaces—are extremely difficult for robots. Engineers and robotics specialists, including Ken Goldberg from UC Berkeley, emphasise that replicating human dexterity and versatile, general-purpose functionality remains among the most complex challenges in robotics.

Tesla also faces stiff competition from established players. Companies such as Boston Dynamics, Figure, Hyundai, and Google DeepMind are already developing humanoid robots. McKinsey estimates that over 90 firms worldwide have humanoid robot products. Achieving reliable, mass-produced robots capable of performing a broad range of tasks is expected to take at least a decade, and widespread deployment remains a distant goal.

Tesla's Financial Context

Tesla's financial position has added pressure to its ambitious plans. In the fourth quarter of 2025, adjusted earnings declined by 16 per cent, while net income fell by 61 per cent that quarter and 46 per cent for the year, representing a drop of roughly $3.3 billion. Annual earnings in 2025 were only 30 per cent of Tesla's peak of $12.6 billion in 2022.

Furthermore, Tesla lost its position as the world's largest EV manufacturer to Chinese rival BYD in 2025. Sales and profits remain vital for funding Tesla's ambitious projects, including humanoid robots and autonomous vehicle development.

Robotaxi and Autonomy Plans

Musk has also outlined plans for Tesla's robotaxi service. The Cybercab, a two-seat, fully autonomous vehicle with no steering wheel or pedals, is projected to eventually outsell all other Tesla models combined. However, current versions of the service are limited, incorporate safety monitors, and are not fully autonomous.

Tesla initially aimed for its robotaxi network to serve half of the US population by 2025—a goal that has not yet been realised. Musk has reiterated that between a quarter and half of Americans could have access to fully autonomous vehicles by the end of 2026, subject to regulatory approval.

Musk's Vision and Pay Structure

Musk's ambitious plan for humanoid robots ties into his $1 trillion shareholder-approved pay package, which depends on producing one million Optimus units within ten years. Industry analysts note that while Tesla has advantages in electric motors, batteries, and high-volume manufacturing, achieving Musk's robotics goals will require breakthroughs that have yet to be realised.

Public Perception and Political Context

Tesla has faced criticism due to Musk's political commentary and support for former US President Donald Trump, leading to protests and vandalism at some dealerships. Analysts suggest that such controversies could influence consumer confidence in household robots like Optimus.

Despite scepticism, Tesla remains committed to humanoid robots. Musk has likened Optimus to science fiction's personal robots, suggesting they could perform household chores, assist with healthcare, and even provide companionship. However, experts warn that humanoid robots are among the most complex machines ever attempted, and it could take years before Musk's projections materialise.

The discontinuation of the Model S and Model X signals a strategic shift from Tesla's traditional focus on electric vehicles to a broader technological vision. Whether the Optimus programme will succeed—and how it will impact Tesla's future—is uncertain. Nonetheless, the move underscores Tesla's desire to redefine its role in a rapidly evolving technological landscape.