Tesla Ends Model S and Model X — Is BYD's Rise Reshaping the EV Race?

Tesla has confirmed it will discontinue production of its Model S and Model X vehicles, marking a decisive shift away from two of the models that helped define the company's rise.

The announcement, delivered during the company's latest investor call, comes as Tesla grapples with falling vehicle sales, intensifying global competition and a strategic pivot towards artificial intelligence and robotics that is reshaping the electric vehicle market.

Model S and Model X to Be Phased Out

Chief executive Elon Musk told investors that Tesla plans to wind down production of the Model S and Model X next quarter. 'It's time to basically bring the Model S and X programmes to an end,' Musk said during the call, confirming that the decision would close a chapter on Tesla's longest-running premium vehicles.

The Fremont, California facility currently used to build the two models will be converted to support production of Tesla's Optimus humanoid robot. The move underscores how central robotics has become to Tesla's future plans, even as the company's vehicle lineup narrows.

Earnings Beat Masks Falling Vehicle Sales

Tesla's decision arrives alongside a mixed financial picture. The company reported quarterly earnings per share of $0.50 (£0.36), exceeding Wall Street expectations of $0.45 (£0.33). Revenue reached $24.9 billion (£17.9 billion), narrowly beating forecasts, despite Tesla posting its first-ever year-on-year decline in total revenue of 3%.

Automotive revenue fell 11% compared with the same period last year, while fourth-quarter vehicle deliveries dropped 16%. Tesla said demand in Europe was particularly weak, highlighting regional pressure at a time when global EV competition is accelerating.

Shift From Cars to 'Physical AI'

In its earnings materials, Tesla described the past year as a transition from a hardware-focused business to a 'physical AI company.' Alongside Optimus, Musk has repeatedly promoted autonomous Robotaxis as core to Tesla's long-term growth, despite neither technology being commercially available at scale.

Tesla said it plans to begin Optimus production before the end of 2026, with public sales targeted for 2027. The company also disclosed a $2 billion (£1.4 billion) investment in xAI, Musk's artificial intelligence venture, and outlined capital expenditure of $20 billion (£14.4 billion), far higher than many analysts had anticipated.

BYD's Expansion Reshapes the EV Market

While Tesla narrows its vehicle range, BYD continues to expand aggressively. BYD overtook Tesla last year to become the world's largest electric carmaker by sales, driven by lower-priced models and rapid growth across Asia, Europe and emerging markets.

BYD reported sales growth of 28% in 2025, offering consumers cheaper alternatives at a time when affordability has become a key factor in EV adoption. The contrast with Tesla's declining deliveries has fuelled debate about whether the balance of power in the EV race is shifting.

Investor Reaction and Broader Pressures

Tesla shares rose as much as 4% in after-hours trading following the earnings call before easing back. The rally reflected investor optimism around AI and robotics, even as questions persist over the sustainability of Tesla's car business.

Some of Tesla's newer products have struggled to gain traction. The Cybertruck recorded a 48% drop in sales last year, according to Kelley Blue Book data, despite Musk previously describing it as the company's best vehicle.

As competition intensifies and consumer preferences evolve, Tesla's decision to end the Model S and Model X highlights a broader recalibration within the EV industry. With BYD's rapid ascent and price-led strategy reshaping global markets, Tesla's bet on robotics and artificial intelligence now sits at the centre of its future as a carmaker faces one of the most consequential pivots in its history.