Optimus V3 and Moving from Cars to Robots, How Tesla Is Targeting a $5 Trillion Opportunity

Tesla is discontinuing its flagship vehicles to build humanoid robots. The decision is a bet that the robotics market will dwarf the automotive industry within a decade.

On 28 January 2026, during Tesla's Q4 earnings call, Elon Musk made an announcement that would have seemed implausible five years ago: the company will end production of the Model S and Model X in the second quarter of 2026. The Fremont, California factory lines that built Tesla's original flagship vehicles will be repurposed entirely for the manufacture of Optimus, the company's humanoid robot. The target of Tesla is to deliver one million units per year.

The Model S, launched in 2012, and the Model X, introduced in 2015, were the vehicles that established Tesla as a credible automotive manufacturer. They accounted for less than 3 percent of Tesla's 1.59 million deliveries in 2025, but their symbolic weight far exceeded their commercial contribution. The retirement is not the consequence of cost-cutting initiatives but it is a clear statement of strategic direction.

"It's time to basically bring the Model S and X programs to an end with an honourable discharge," Musk said, "because we're really moving into a future that is based on autonomy", referring to "autonomous robots" not "autonomous vehicles".

Optimus V3: Designed for Mass Production

Tesla plans to unveil the third generation of Optimus in the first quarter of 2026. Unlike its predecessors, which were research prototypes, V3 is described by the company as its first robot explicitly designed for mass production.

The robot stands 173 cm tall and weighs approximately 57 kg, its hands feature 22 degrees of freedom, a significant increase from the 11 degrees in the 2023 model, enabling finer manipulation of objects and tools. The AI powering the system draws on the same neural network architecture developed for Tesla's Full Self-Driving (FSD) platform, adapted for physical interaction with unstructured environments.

During Tesla's Q3 2025 earnings call, Musk described V3 in ambitious terms, stating that it "won't even seem like a robot" but "like a person in a robot suit." The robot is designed to learn tasks through demonstration, verbal instruction, or video observation, leveraging the same real-world data feedback loop that Tesla has built through its fleet of autonomous vehicles.

Over 1,000 Optimus units are already deployed across Tesla's global manufacturing facilities, performing autonomous parts handling and assembly tasks, with a dual purpose: to validate the hardware in real-world conditions and to generate the training data required to improve the AI continuously.

The Economics of a $20,000 Robot

Tesla plans to double its investment relative to 2025, investing over $20 billion in capital expenditure during 2026, a significant portion of which is directed toward robotics and AI infrastructure. The Fremont conversion is part of a broader manufacturing expansion that includes six new production lines across vehicles, robots, energy storage, and battery manufacturing.

Musk has projected a production cost for Optimus below $20,000 per unit, assuming annual volumes exceeding one million units. To understand the size of the challenge, a single-purpose industrial robotic arm from established manufacturers such as FANUC or ABB typically costs between $50,000 and $150,000 and is designed for one specific task. A general-purpose humanoid, capable of performing multiple tasks across different environments, at $20,000 to $30,000 would represent a fundamentally different value proposition.

Musk, during Tesla's annual shareholder meeting, stated that Optimus will eventually represent 80 percent of the company's total value, exceeding the automotive business entirely.

The market projections support the ambition: Morgan Stanley estimates the global humanoid robotics market will reach $38 billion by 2035 and $5 trillion by 2050.

Whether these projections materialise depends on key unresolved variables: 1. the reliability of humanoid robots in unstructured environments, 2. the speed at which investment costs and operational costs can be lowered, 3. regulatory frameworks for deploying autonomous machines alongside human workers, and 4. the speed at which industries will adopt a technology that remains, for now, in its early commercial phase.

Why Tesla Believes It Has an Edge

Tesla's case for leadership in humanoid robotics relies on three pillars:

1. Vertical Integration: Tesla designs its own AI chips, builds its own batteries, manufactures its own power electronics, and operates its own factories. An end-to-end control, developed over more than a decade of automotive manufacturing, that provides cost advantages and iteration speed that pure robotics startups lack.
2. Data: Tesla's fleet of vehicles equipped with cameras and FSD software has generated one of the largest real-world datasets for AI training. The same neural network principles that enable a car to navigate an intersection can be adapted to enable a robot to navigate a warehouse or a factory floor. Every Optimus unit deployed in Tesla's manufacturing facilities feeds data back into the network, creating a compounding improvement cycle.
3. Manufacturing Scale: No other humanoid robotics company has access to automotive-grade production infrastructure. The Fremont factory alone can accommodate the target of one million units per year and Tesla's direct experience in high-volume manufacturing, supply chain management, and quality control at scale is a structural advantage that cannot be replicated quickly.

American competitors in the humanoid space, including Figure AI, Agility Robotics, and Boston Dynamics, are at the moment pursuing different strategies, but none has yet demonstrated the ability to manufacture at anything close to Tesla's projected volumes. Boston Dynamics may be the exception to watch: its controlling shareholder, Hyundai, brings the automotive-grade manufacturing infrastructure and supply chain depth that could enable a credible path to mass production, a capability that pure robotics startups lack.

The Competitive Landscape

A market expected to be worth $5 trillion by 2050 is attracting large investments: the humanoid robotics arena is already taking shape, and it is not an exclusively American story.

Globally, between 13,000 and 18,000 humanoid robots were sold in 2025, with the majority produced by Chinese companies: Unitree, based in Hangzhou, sold approximately 5,500 units; Shanghai-based Agibot followed with over 5,000. China has more than 140 manufacturers producing over 330 humanoid robot models, supported by state funding, dedicated industrial zones, and a manufacturing ecosystem that enables rapid iteration from prototype to production.

At CES 2026, 20 of the 34 exhibiting humanoid robotics companies were Chinese, representing nearly 60 percent of the field.

The price differential is notable: Unitree advertises a base price of $13,500 for its G1 humanoid robot. Tesla's target of $20,000 to $30,000 would position Optimus above the cheapest Chinese alternatives but well below the $100,000-plus price points of Western competitors such as Figure AI.

China currently leads in hardware volume and manufacturing scale, but the decisive factor in the long-term competition will be the ability of the robot to learn, adapt, and operate autonomously in complex, unstructured environments. This is where Tesla's FSD-derived AI and its massive real-world training dataset may prove decisive.

What to Watch

The V3 unveiling, expected in Q1 2026, will reveal whether the design lives up to the mass-production claims. The Fremont line conversion, scheduled for Q2, will signal the speed of the manufacturing pivot. The first external customer deliveries, expected to happen in late 2026, will test whether industries beyond Tesla's own factories are ready to adopt humanoid robots at the promised price points.

The humanoid robotics market is entering its transition year, the point at which these machines move from controlled demonstrations and research deployments into real industrial applications. The comparison to the early days of the EV market is instructive: the companies that achieved manufacturing scale first captured durable market positions. A similar dynamic is likely to play out in humanoid robotics, with high initial scepticism, followed by rapid cost reduction and finally mass production due to mass adoption.

This is part of Tech Cold War's coverage of the humanoid robotics competition. Subscribe to receive analysis directly in your inbox.

Sources
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