Tesla is navigating a profound strategic shift, marking a potential turning point in its corporate history. The electric vehicle pioneer is severing ties with its foundational models while channeling billions into artificial intelligence and robotics. This realignment, championed by CEO Elon Musk, is being propelled by rumors of a potential merger with SpaceX and stronger-than-anticipated profitability in the final quarter of 2025.
Merger Speculation Fuels Investor Sentiment
Market speculation received a significant boost from a Bloomberg report indicating that SpaceX is evaluating a potential merger with either Tesla or xAI. Analysts suggest such a combination could unlock substantial synergies, potentially integrating Starlink connectivity into vehicles or deploying Tesla’s Optimus humanoid robots in aerospace manufacturing. Tesla’s share price, currently trading at 392.90 euros, reacted favorably to these rumors in after-hours U.S. trading.
The Closure of an Era: Discontinuing Legacy Models
In a decisive strategic move, Musk is phasing out production of the once-flagship Model S and Model X vehicles. These models, which originally established Tesla as a serious automaker, now contribute only a minor fraction of total revenue. The rationale is purely pragmatic: the freed manufacturing capacity will be reallocated to produce the Optimus humanoid robot. This underscores a corporate bet on a future extending far beyond traditional car manufacturing, a focus further emphasized by Tesla’s participation in a $2 billion investment in the AI firm xAI.
Profitability Strength Amidst Revenue Pressure
Tesla’s fourth-quarter 2025 results provided investors with reasons for optimism, despite a mixed annual picture. For the full year 2025, the company recorded its first-ever revenue decline, with figures dropping approximately 3% to just under $94.8 billion. However, the profitability metrics from the closing quarter delivered a positive surprise.
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The automotive gross margin, excluding regulatory credits, was a key driver of this sentiment, climbing to 17.9%. This figure substantially exceeded analyst projections of 14.3%. Furthermore, adjusted earnings per share came in at 50 cents, also beating Wall Street forecasts. These indicators suggest Tesla’s cost-reduction initiatives are proving effective, even as pure top-line growth has stalled.
Soaring Investments and Tempered Near-Term Outlook
This corporate transformation carries a hefty price tag. Chief Financial Officer Vaibhav Taneja announced that capital expenditures are set to more than double in 2026, exceeding $20 billion. These funds will be directed primarily toward scaling production of the Cybercab, the Semi truck, and the robotics division.
Musk, however, cautioned against over-enthusiasm for the immediate future. He warned that the production ramp for both the Cybercab and the Optimus robot would be “excruciatingly slow” initially before gaining momentum. For the current year, Wall Street anticipates vehicle deliveries of 1.77 million units, which would represent moderate growth of about 8%.
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