All-In

It is the beginning of Act II as Tesla goes all-in on Robotaxis and Optimus

Mark this week in your calendar as the official date where everything changed for Tesla. It’s 2003 again, a new paradigm, and the company is once again building itself for the future.

End of the Line

Elon Musk on Tesla’s Q4 and full year earnings call:

It’s time to bring the Model S and X programs to an end with an honorable discharge. We are really moving into a future that is based on autonomy. If you are interested in buying a Model S and X, now would be the time to order it because we expect to wind down S and X production next quarter and basically stop production of Model S and X next quarter.

It’s a bold move. I don’t think any other automaker would have the guts to do it, yet they probably should. Most car lineups are bloated and complex. Bringing the main line down to two vehicles from four simplifies operations, lowers costs, and still gives core Tesla customers everything they’re looking for in a vehicle.

I get the sense Elon is the type of person who would have preferred a two vehicle lineup in the first place. As Charlie Munger would advise:

In business we often find that the winning system goes almost ridiculously far in maximizing and or minimizing one or a few variables.

Elon seems to follow this approach. But the four vehicle lineup was a vestige of the past where Tesla started upmarket and worked its way down. A remnant of this plan is you’re sitting with manufacturing capacity that’s tooled for premium vehicles. Not anymore.

I imagine that it’s cathartic for Elon to be back to a more simple lineup, and he’s excited for the (initially) single SKU CyberCab product.

It will be interesting to see what this means for the Cybertruck and Roadster. Freeing up the Cybertruck capacity would release an additional 125,000 installed annual manufacturing capacity, which implies 1.25 million annual Optimus capacity (see below).

The Future is Autonomous

Elon Musk on the earnings call:

We are going to take the Model S and X production space in our Fremont factory and convert that into an Optimus factory with a long-term goal of having a million units a year of Optimus robots in the current S and X space in Fremont. That is slightly sad, but it is time to bring the S and X programs to an end and shift to an autonomous future. As my profile picture on X for a few months there, the future is autonomous.

For context, the installed annual manufacturing capacity for Model S and X at the Fremont factory is 100,000 (implying 10 Optimus units per vehicle). While the Model 3 and Y will continue, this officially marks the beginning of the end of Tesla as an electric vehicle company and starts a new era where the company is all-in on robotaxis and humanoid robots.

Tallying the Cost

Elon Musk on the earnings call:

As we increase vehicle autonomy and begin to produce Optimus robots at scale, we are making very big investments. This is going to be a very big CapEx year, as we will get into. That is deliberate because we are making big investments for an epic future. I think all these investments make a lot of sense. We will continue to make sure that when we do spend capital, it is spent very efficiently. But it’s a lot of things.

Tesla 2025 CapEx: $9 billion

Tesla 2026 CapEx: $20 billion

That’s bold. Increasing CapEx by over 200% doesn’t happen often for a company Tesla’s size. But nothing is free. Especially not a plan that includes building six new factories, a lithium refinery, a robotaxi fleet and dedicated facilities for the CyberCab, Semi, and Optimus.

Good capital allocation responds to the opportunity set presented, and Tesla are confident they have identified large capital projects with big payoffs. So they are investing. This is great news.

Tesla is still making the gutsy calls needed to set the company up for the future. It’s not often you see an established company do that. But it is required. It’s a benefit of being founder-led. Expect to see massive changes, a lot of opinions. Basically, it’s back to being a wild ride. The sceptics will have a field day in the meantime, Tesla will keep its head down for years and execute.

Vaibhav Taneja on the earnings call:

Starting not the next chapter, but a new book on the progression of this company. 2026 would be when all of this began. (emphasis added)

This is truly the beginning of Act II for Tesla.

Like I said, it’s going to be a wild ride.

And I’m here for it.

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