Why Musk Stopping Tesla Model S and Model X Production Is a Wise Move?

TradingKey - Musk is leading Tesla (TSLA) into a final sprint toward the humanoid robot sector, aiming to replace the Tesla EV business which has been sluggish for the past two years. A mature industrial foundation has made Tesla's pivot relatively smooth; by scaling back its EV business to capture a larger and broader market, the once-faltering stock appears to have found a new narrative in the equity market.

Why did Elon Musk choose to discontinue Tesla's Model S and Model X?

During the Q4 2025 earnings call, Musk announced that production of the Model S and Model X would cease by the second quarter of 2026, leaving only the high-volume Model 3, Model Y, and Cybertruck, signaling a significant shift in Tesla's strategic focus.

Market analysts estimate that if the Optimus project succeeds, Tesla could generate up to $25 billion in annual revenue from robot sales. These robots will be manufactured using the existing Model S/X production lines. Once the Optimus project matures, its scaled annual revenue is expected to far exceed that of the Model S and Model X.

Through the rational and effective allocation of production lines, Musk can not only address structural business weaknesses but also repurpose those assets for the new growth engine, 'Optimus,' thereby reducing the one-time capital expenditures required for building new production lines.

Why did Musk choose Optimus to succeed traditional business operations?

Musk has stated publicly that the long-term value of Optimus will far exceed that of the automotive business, potentially even surpassing Tesla's current total market capitalization.

Indeed, from an application perspective, Tesla EVs focus solely on human mobility, whereas Optimus applications span countless scenarios, including manufacturing, logistics, healthcare, and agriculture.

It should be noted that while the lifecycle of a Tesla vehicle user is limited, the user lifecycle for Optimus is naturally extended due to its diverse applications, strong user stickiness, and high switching costs. It is no exaggeration to say that Optimus could accompany a person throughout their entire life.

Most importantly, Musk expects the final mass-production price of Optimus to be as low as 20,000 to 30,000 RMB, which is significantly lower than the manufacturing cost of Tesla's traditional EVs. This advantage in product lifecycle and mass production offers far greater growth potential than Tesla's EV business.

For Tesla investors, there are two key metrics to watch:

Metric 1: Whether Optimus mass production can reach Musk's target of one million units by 2026. Successfully meeting or exceeding this expectation would undoubtedly be a major catalyst for Tesla.

Metric 2: Whether the profit margin for Optimus can exceed 20%. For Optimus, the margin must at least match or exceed those of the Model S and Model X, which is the most critical figure in the financial statements. If this margin is not achieved, investors should monitor opportunities for margin expansion following further scaling.

While Musk is in the final sprint toward the AI humanoid robotics sector, if Tesla's results fail to meet market expectations, the stock price may face a new round of downward pressure.

From an overall strategic standpoint, we still believe that Musk's decision to discontinue the Tesla Model S and Model X is a prudent move.