Elon Musk has long argued that humanoid robots represent a market far larger than the entire automotive industry. For years, he has positioned Tesla's Optimus as the first humanoid robot to achieve truly industrial-scale production — a vision that sounded ambitious, even futuristic. But in early 2026, Tesla is turning those words into concrete action.
During Tesla's Q4 2025 earnings call on January 28, 2026, Musk announced a dramatic shift: production of the Model S sedan and Model X SUV will end in the second quarter of 2026.
The dedicated production lines for these vehicles at Tesla's Fremont factory in California are being fully repurposed. Instead of luxury electric cars, the space will become a dedicated manufacturing hub for Optimus, with a long-term target of 1 million units per year.
From Legacy Flagships to Robot Revolution
The Model S and Model X have been cornerstones of Tesla's brand since the early 2010s — the S launched in 2012 as the company's first mass-produced vehicle from Fremont, followed by the X in 2015.
These models helped establish Tesla as a premium EV maker, but their production volumes have declined significantly in recent years, representing only a small fraction (around 3%) of Tesla's global output in 2025.
Musk described the phase-out as giving the programs an "honorable discharge", urging current or potential buyers to order soon while support (parts, service) continues indefinitely.
Importantly, the change affects only the S and X lines — Fremont will keep producing the high-volume Model 3 and Model Y, and Tesla expects overall vehicle throughput to remain stable or even grow through efficiency gains. The company also signaled that retooling won't lead to job losses; in fact, headcount at Fremont may increase as robot production ramps up.
The key line from Musk:
> "We are going to take the Model S and X production space in our Fremont factory and convert that into an Optimus factory, with the long-term goal of having a million units a year of Optimus robots in the current S and X space."
This isn't just reallocation — it's a symbolic and strategic bet that Physical AI (embodied intelligence in robots) will drive Tesla's next era of explosive growth.
Optimus Gen 3: Production-Ready and Imminent
The timing aligns with Musk's earlier statements about Optimus reaching real-world utility. Tesla plans to unveil Optimus Gen 3 — described as the first version explicitly designed for mass production — in the coming months (likely Q1 or early Q2 2026).
This iteration includes major upgrades, such as an improved hand design for better dexterity, enhanced autonomy powered by Tesla's Full Self-Driving (FSD) tech stack, and overall refinements to make it factory-deployable.
Musk has repeatedly emphasized that Optimus will handle unsafe, repetitive, or boring tasks — starting inside Tesla factories (sorting, assembly, logistics) before expanding to external customers. He has targeted a long-term price around $20,000–$30,000 per unit, potentially transforming labor markets and boosting global GDP "by an order of magnitude" once scaled.
While earlier timelines (limited production in 2025, thousands of units internally) have been ambitious, the Fremont retooling sends a clear signal: Tesla is committing real capital and factory space to make high-volume Optimus a reality. Initial ramp-up will be slow — Musk has noted that new processes like those for Optimus and Cybercab follow an S-curve — but the end goal is "insanely fast" output.
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Why 2026 Looks Transformative for Physical AI
This move underscores Musk's belief that autonomy and robotics are where Tesla's true value lies. He has stated that autonomy already makes Tesla worth more than the rest of the auto industry combined — and that's before Optimus hits scale. With the Fremont pivot, Tesla is literally reallocating physical assets from declining legacy products to what Musk sees as the bigger opportunity.
Critics note the risks: humanoid robotics remains technically challenging, competition is heating up (from Figure, Boston Dynamics, Agility Robotics, and others), and Tesla's core EV business faces headwinds. Yet the decision to sacrifice Model S/X production space for a 1-million-unit Optimus line is one of the clearest signs yet that Tesla is all-in on embodied AI.
2026 is shaping up to be a defining year for Physical AI. If Optimus Gen 3 delivers on its promise and the Fremont line begins scaling, Tesla could move beyond being just an automaker — and into something far more disruptive. The future Musk has been promising for years is no longer hypothetical; the factory conversion has begun.
