Tesla's Honorable Discharge
A Study in Strategic Amputation
Three days ago Elon Musk announced the end of Tesla’s Model S and Model X programs, describing it as an “honorable discharge.” It is characteristic Muskian branding—recasting a disengagement from a battlefield as a victory lap for a veteran soldier.
But strategy is problem-solving, not ceremony. And the problem is that Tesla’s total worldwide deliveries declined in both 2004 and 2025. In Europe, cheaper models and broader EV adoption are reducing Tesla’s relative share. In China, domestic rivals are expanding rapidly and squeezing Tesla’s position.
In the U.S., Tesla faces saturation among early adopters, an aging product lineup, repeated price cuts that have weakened brand coherence, and a broader cooling of consumer enthusiasm for electric vehicles. While the company is maintaining production of its models 3, Y, and Cybertruck, shipments of these remain in decline.
To understand Tesla’s situation, recognize the trap it walked into. For two decades, the West—and Tesla in particular—succumbed to a predictable appetite for low-cost manufacturing and rapid valuation growth. China exploited this appetite, luring firms into deep dependency on its industrial base.
The Shanghai Gigafactory was Tesla’s specific lure, providing margin-rich scale at exactly the moment the company needed it. The move propelled Tesla’s valuation, but also a massive transfer of learning from Tesla’s early Fremont experience.
By the time Tesla stockholders finished celebrating quarterly gains, China had developed a parallel ecosystem—BYD, Xiaomi, Geely—capable of flooding much of the world with electric vehicles produced at a cost structure Tesla cannot match.
The Diagnosis
Musk is now confronting a hard strategic truth: you cannot “solve” a trap once it has sprung; you can only exit the terrain.
Musk’s immediate move is not a total exit, but a clinical amputation. With the models S and X accounting for less than 3% of sales, they have become legacy products that require ‘sentimental’ maintenance, while Chinese rivals like Lucid and BYD surpassed their technical specs at lower prices. If he spends the billions required to refresh them, he wastes capital on a segment that no longer drives the stock’s $1.4 trillion “AI” valuation. And these models have occupied up to 20% of prime Fremont factory real estate, while their sales have fallen by 30-50% year-over-year.
Thus, Tesla cannot move forward without shedding the very products that made it a household name. In dropping these premium products, he is also physically clearing the Fremont floor for the migration into robotics. This move is giving up on the pretense that Tesla is a luxury automaker.
It is likely that, as volumes continue to decline, Tesla will have to discontinue additional EV models. That will be giving up on Tesla as a consumer automaker altogether.
By retooling the Fremont lines for Optimus robots and autonomous “Cybercabs,” Elon Musk is pursuing a migration strategy. He is leaving what has become a war of attrition to seek advantage in a domain where Tesla’s strengths in software, systems integration, and physical manufacturing might matter more than cost alone.
This is not a single move but a sequence. Tesla is first disengaging from a battle of attrition and second, recentering its capabilities around autonomy and robotics.
Whether this recombination produces a durable advantage remains unclear. China has repeatedly shown that it can absorb learning and attack integrated systems as effectively as it can attack modular ones. Thus, this migration to new territory may prove to be just another exposed position. Much will depend on the frictions of trade barriers and safety regulations that may surround both autonomous vehicles and true robots. Today, the future of this move remains obscured by regulatory uncertainty and unresolved technical issues.
The disengagement may be rational. It may even be necessary. But it is not voluntary—and it is not yet proof of advantage. It is the price of survival.
[The terms in bold type are basic strategic primitives. I will have more to say about them in future posts.]
It seems to me that a big part of the big companies in the world have used China to create higher profits for a while, have moved their main manufacturing there and are now suffering the consequences.
I always wonder why companies don't think ahead. But maybe it's just the structure of corporate businesses that require short-term profitability over long-term thinking. But you can see a similar pattern now play out with AI - companies laying off people, use AI to replace them and increase the profits short term. The issues will just crop up a little bit later.
10.22% of the cars registered in Spain in 2025 were Chinese, meaning that just over 1 in every 10 vehicles sold came from the Asian country. This represents a 50% increase compared to 2024. In total, we are talking about 117,341 cars.
Crazy