Tesla has agreed to invest approximately $2 billion in xAI's Series E Preferred Stock, signaling deeper integration between its automotive and AI ambitions. The company is also discontinuing its Model S and Model X vehicles to shift focus toward robotics and AI infrastructure. This pivot includes operational ties, such as xAI's $430 million purchase of Tesla's Megapack systems in 2025.
Tesla announced on January 16, 2026, an agreement to invest about $2 billion in xAI, the AI company founded by Elon Musk, through Series E Preferred Stock. This move, disclosed in SEC filings, aligns with Tesla's board's fiduciary duties and related-party transaction policy. It positions Tesla as more than an electric vehicle maker, evolving into a "physical AI" platform that encompasses data centers, grid-scale batteries, humanoid robots, and autonomy.
Simultaneously, Tesla plans to retire its longstanding Model S sedan and Model X SUV. Reports indicate this decision reallocates factory space and resources to robotics, including the humanoid robot program, rather than low-volume premium vehicles. In 2025, Tesla's "other models" category, which includes Model S, Model X, and Cybertruck, accounted for 50,850 units sold—a mere single-digit percentage of total volume—highlighting their diminishing role.
Further linking the companies, Tesla's 2025 Annual Report on Form 10-K revealed $430 million in revenue from xAI for Megapack products, with $285 million in costs. Megapack supports grid-scale energy storage, crucial for AI's power demands. This creates a strategic flywheel: Tesla's capital bolsters xAI's AI research for autonomy and robotics; manufacturing shifts to these priorities; and energy solutions like Megapack fuel xAI's operations.
These developments raise governance questions, given xAI's ties to CEO Elon Musk. Tesla manages such transactions through internal reviews, but the scale—$2 billion investment plus $430 million in sales—invites scrutiny from investors and regulators on resource allocation and pricing, especially as Tesla de-emphasizes certain vehicle lines.