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

TradingKey - Musk is leading Tesla (TSLA) into the final sprint toward the humanoid robot sector, aiming to replace Tesla's lackluster EV performance of the past two years. Tesla's mature industrial foundation makes this pivot relatively seamless. By scaling back its EV operations to capture a larger and broader market, the once-faltering stock appears to have found a fresh narrative for the equity market.

Why Did 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 will cease by Q2 2026, leaving only the top-selling Model 3, Model Y, and Cybertruck in the lineup. This marks 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 existing Model S/X production lines. Once the Optimus project matures and scales, its annual revenue is expected to far exceed that of the Model S and Model X.

Through strategic production line reconfiguration, Musk is not only addressing structural business weaknesses but also transforming them into assets for the new 'Optimus' growth engine. This approach minimizes one-time capital expenditures associated with building new manufacturing lines.

Why Did Musk Choose Optimus to Succeed the Legacy Business?

Musk has stated publicly that the long-term value of Optimus will far surpass the automotive business and could potentially exceed Tesla's entire current market capitalization.

Indeed, from a functional perspective, Tesla EVs are limited to human mobility, whereas Optimus applications span countless sectors, including manufacturing, logistics, healthcare, and agriculture.

It should be noted that while Tesla vehicles have a limited user lifecycle, Optimus naturally extends it through diverse use cases, high user stickiness, and substantial replacement costs. It is no exaggeration to say that Optimus could remain a companion throughout a person's 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 potential for growth than Tesla's EV business.

For Tesla Investors, Two Key Metrics Warrant Close Attention:

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

Second metric: Whether Optimus's profit margin can exceed 20%. For Optimus, the profit margin needs to at least reach or exceed those of the Model S and Model X, which will be the most significant data point in financial reports. If it falls short, investors should monitor potential for margin improvement after reaching scale.

Despite Musk's sprint into AI-powered humanoid robotics, if Tesla's results fail to meet market expectations, the stock price could face a new round of downward pressure.

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