Tesla Allocates $2 Billion to Musk's xAI, Confirms Cybercab Production This Year

Tesla's Strategic Investment in AI and Production Plans

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 and Semi trucks were on track for this year.

Musk has pivoted Tesla from an electric vehicle maker to an AI company, with much of the company's $1.5 trillion valuation hanging on that bet. The investment in xAI is expected to bolster his autonomous driving and robotics ambitions.

Tesla's shares were up about 3.4% in extended trading.

Impact on Investor Confidence

Reiterating Tesla's production plans is key for investor confidence as the company has repeatedly missed promises made by Musk, including the ramp-up of its robotaxi service across the U.S.

Tesla's vehicle 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. 

Wall Street expects the company to deliver 1.77 million vehicles in 2026, representing an 8.2% increase, according to Visible Alpha data.

The Austin, Texas-based company reported revenue of $24.9 billion for the three months ended December 31, beating analysts' average estimate of $24.79 billion, according to data compiled by LSEG. 

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

The company's automotive gross margin excluding regulatory credits came in at 17.9%, well above expectations of about 14.3%, according to Visible Alpha.

Future of Self-Driving Technology

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.

Tesla has leaned on lower-priced "Standard" versions of its best-selling Model 3 and Model Y to attract more price-sensitive buyers, a strategy analysts expect will play a key role in 2026 deliveries growth even if it pressures margins. 

Some analysts view it as a deliberate trade-off to expand the vehicle fleet that can later generate higher-margin revenue from software.

Energy Generation and Storage Growth

Its energy generation and storage business has proven to be a notable bright spot. Tesla said its energy-storage deployments rose about 29% to a record 14.2 gigawatt-hours in the fourth quarter, benefiting from sustained demand for grid-scale batteries used to support renewable power and stabilize electricity networks.

Investors have been looking for signs that the 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.

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.

Musk had said last year that Tesla aimed to begin production of its purpose-built Cybercab in April 2026, describing it as a fully autonomous vehicle 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, he said initial production of the Cybercab robotaxi and the humanoid robot Optimus would be "agonizingly slow" before accelerating over time, leaving investors still waiting for a more detailed timeline and production forecast.

Tesla's shares rose about 11% in 2025. An $878 billion pay package for Musk, hinged on 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; Editing by Pooja Desai and Matthew Lewis)