Tesla’s Q1 Earnings Beat Masks a Radical Strategic Shift: Model S and X Are Gone by Summer

Tesla is closing the book on its two longest-running nameplates. Production of the Model S and Model X will end in the second quarter of 2026, clearing the Fremont factory floor for the humanoid robot Optimus. The move recycles assembly lines that built just 6,000 Model S and 13,000 Model X units through all of last year — a rounding error against total volume — into facilities targeting one million Optimus units annually.

The surrender of two vehicles that defined Tesla’s early luxury image comes as the company simultaneously delivers a first-quarter earnings surprise. Adjusted earnings per share landed at $0.41, beating the $0.36 consensus, while automotive gross margin jumped from 16.2% to 21.1%. The real story, however, is the acceleration of non-automotive revenue: service and Full Self-Driving income surged 42% to $3.75 billion, backed by 1.28 million active FSD subscribers. Tesla has also promised to maintain software updates and service for existing Model S and X owners, and will clear residual inventory by bundling free FSD and Supercharging into purchase incentives.

Analysts remain deeply divided on valuation. The stock trades at €367.95, roughly 10% above its 50-day moving average but 14% below the 52-week high of €416.90. The average price target among 47 analysts stands at $411.89, with a range spanning $123 to $600 — a spread that reflects the gap between those valuing Tesla as an automaker and those betting on autonomy and robotics. The consensus recommendation is “buy,” yet the stock’s trailing price-to-earnings multiple of 382 leaves little room for execution stumbles.

Should investors sell immediately? Or is it worth buying Tesla?

The Fremont retooling is part of a broader shift beyond cars. Tesla is building a new solar Gigafactory in Brookshire, Texas, adjacent to its existing Megapack facility, and has already launched uncrewed robotaxi rides in Dallas and Houston. The company still intends to begin volume production of the Cybercab, Tesla Semi, and Megapack 3 later this year. But the near-term cost of the factory conversion is expected to pinch second-quarter deliveries, with prediction markets flagging a temporary output dip.

For all the excitement around Optimus and FSD, the decision to retire the Model S and X carries real risk. Those models were Tesla’s original halo products, and giving them up before the robotaxi or humanoid business has proven itself is a gamble. The company’s own first-quarter industrial free cash flow remained negative at minus $1.9 billion, though the automotive gross margin improvement offers a counterbalance. How smoothly Fremont transitions from luxury sedans to humanoid production will determine whether this strategic pivot looks visionary or premature — and whether the stock’s stretched valuation can be justified by the second half of 2026.

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