Tesla Discontinues Model S and X, Doubling Down on Autonomy as Core Auto Business Weakens

What happened

Tesla is discontinuing its Model S and Model X vehicles, as reported in a recent article, framing this as a strategic shift toward autonomous driving aligned with long-term aims. This move occurs against a backdrop of declining automotive fundamentals, with the DeepValue report noting Tesla's 2025 deliveries fell to 1.64 million from 1.79 million in 2024, and automotive gross margin compressed to 15.4% for nine months ended September 2025. The report emphasizes that Tesla's valuation hinges on scaling Robotaxi and Cybercab initiatives, which require a capex step-up exceeding $20 billion in 2026 and face regulatory and execution risks. Discontinuing these legacy models may free up resources but does not materially impact sales, as claimed, yet it underscores Tesla's pivot away from a weakening auto segment to fund high-stakes autonomy bets. Investors must now watch for proof points in Cybercab ramp-up and Robotaxi expansion, with the report highlighting that failure to show progress by mid-2026 could trigger funding needs and undermine the thesis.

Implication

The move away from Model S and X signals Tesla's commitment to autonomy but removes brand-prestige products, though they were minor sales contributors, aligning with the company's shift to a 'two-track' narrative of weakening EVs and rising autonomy bets. Per the DeepValue report, automotive margin pressure is already evident, and this strategic reallocation does little to stabilize the cash engine funding massive AI and capex investments. Investors should view this as increasing execution risk, as Tesla must now accelerate Robotaxi and Cybercab scaling without the safety net of a robust auto profit stream, amid a planned $20+ billion capex in 2026. Critical monitoring points include whether discontinuing these models leads to tangible progress in Cybercab production by mid-2026 and Robotaxi expansion into new metros, as failure here could force dilutive funding. Ultimately, this reinforces the 'WAIT' rating from the report, urging investors to remain cautious until Tesla demonstrates hard operational proof points that protect free cash flow through the high-capex period.

Thesis delta

This news does not alter the core investment thesis from the DeepValue report, which already positions Tesla as a 'WAIT' due to high valuation and reliance on autonomy scaling amid weakening auto fundamentals. It reinforces the urgency of the shift to autonomy but adds no new material risks or catalysts, simply confirming Tesla's strategic direction as previously disclosed. Investors should maintain their focus on the upcoming milestones, such as Cybercab ramp and Robotaxi expansion, to assess whether Tesla can execute without external funding.