Tesla invests $2 billion in Musk’s xAI and reiterates Cybercab production starts this year

By Akash Sriram and Abhirup Roy

Jan 28 (Reuters) – Tesla said on Wednesday it will invest $2 billion in CEO Elon Musk’s artificial intelligence company xAI – and that production plans for its Cybercab robotaxi were on track for this year.

The news supported Musk’s plan to pivot Tesla from an electric vehicle maker to an AI company, which is key to the company’s roughly $1.5 trillion valuation. Shares rose 3.8% even though some analysts and investors were skeptical that the CEO would hit his own production launch targets, based on previous misses.

Tesla is “entering a transition phase” where it is asking investors to underwrite potential revenue from self-driving software in its cars and robotaxi business before auto sales recover, said Thomas Monteiro, senior analyst at Investing.com.

“(That) makes rollout metrics – not deliveries – the most important leading indicator from here,” Monteiro said.

Tesla’s core EV business, which still accounts for most of the company’s current revenue, has been under strain as rivals roll out newer models, often at lower prices. A U.S. tax incentive for electric vehicles has also ended, and Musk’s far-right political rhetoric has alienated some customers. 

Tesla’s revenue fell about 3% to roughly $94.83 billion in 2025, marking the company’s first annual decline in revenue.

To defend volumes, Tesla has relied heavily on discounts and incentives, and introduced lower-priced trims of its best sellers. Wall Street expects the company to deliver 1.77 million vehicles in 2026, representing an 8.2% increase, according to Visible Alpha data.

Adjusted earnings per share of 50 cents in the fourth quarter topped Wall Street targets of 45 cents, according to LSEG data.

Despite the sales drop, the company’s automotive gross margin excluding regulatory credits came in at 17.9%, up from 13.6% a year earlier and well above expectations of about 14.3%, according to Visible Alpha.

Its energy generation and storage business has proven a notable bright spot, benefiting from sustained demand for grid-scale batteries used to support renewable power and stabilize electricity networks.

Revenue from the energy generation and storage segment rose 25.5% to a record $3.84 billion in the December quarter, trouncing analysts’ estimates of $3.46 billion.

‘SCORCHING HOT AI BOOM’

Investors have increasingly focused on Musk’s push into self-driving technology and robotics, with many looking for proof that the autonomy story is moving from promise to product.

An investment by Tesla in xAI was long expected. Analysts have said Tesla will benefit from xAI’s advanced models and growing valuation.

“With Tesla’s legacy EV business slowing, Tesla investors can take part in the scorching hot AI boom,” said Andrew Rocco, a stock strategist at Zacks Investment Research.

Investors have also been looking for signs that Tesla’s Full Self-Driving (FSD) and robotaxi rollouts are advancing, including updates on regulatory progress and clearer timelines for the purpose-built Cybercab, which is designed without a steering wheel or pedals.

Cybercabs will be added to its robotaxi service that currently relies on Model Y vehicles running a version of Full Self-Driving and will also be available for consumers to buy.

Last week, Musk said initial production of the Cybercab robotaxi and the humanoid robot Optimus would be “agonizingly slow” before accelerating over time, leaving investors waiting for a more detailed timeline and production forecast.

There are also regulatory hurdles involved with producing the Cybercab, which Musk has said will have no steering wheel or pedals. Current federal rules allow companies to produce only 2,500 vehicles annually that deviate from federal vehicle design standards requiring such features. Last year, the U.S. Transportation Department said it would be “streamlining” the exemption process, but 2,500 is still the cap.

Some legislation being considered in Congress could raise that cap.

Musk has repeatedly set ambitious timelines for robotaxis – saying they would reach half of the U.S. population by the end of 2025 – before later narrowing that goal to deployment in the top eight to 10 metropolitan areas. The company has since missed those targets and provided no updated timelines.

He has continued to predict rapid progress for Full Self-Driving, a vision he has outlined for nearly a decade, but has not provided firm dates for regulatory approval or broad unsupervised deployment.

Still, Tesla’s shares rose about 11% in 2025. An $878 billion pay package for Musk, pegged to a series of lofty operational and valuation milestones, reassured investors of his commitment to Tesla among his other business and political interests.

(Reporting by Akash Sriram in Bengaluru and Abhirup Roy in San Francisco; Additional reporting by Chris Kirkham in Los Angeles; Editing by Pooja Desai and Matthew Lewis)