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Musk’s xAI Startup Under Fire from Tesla Investors

Elon Musk Xai

Claiming Musk’s xAI startup is a “competing company” grabbing artificial intelligence expertise and resources from the company, Tesla shareholders sued CEO Elon Musk and the board on Thursday.

It comes on the same day that voters in Delaware decided to restore Musk’s $44.9 billion pay package thrown out in January.

On behalf of Tesla, Cleveland Bakers, and Teamsters Pension Fund, Daniel Hazen and Michael Giampietro lodged the June 13 stockholder action in Delaware’s Chancery Court.

Allegations of xAI Talent and Resource Diversion

They assert Musk raised billions for the firm while “touting xAI’s access to Tesla’s AI-related data,” moving “scarce talent and resources from Tesla to xAI.”

Long highlighting the AI-backed self-driving capabilities of its vehicles and driver aid technologies, the manufacturer has

The trio said Musk’s xAI hired numerous key AI-focused employees from Tesla, including its most significant hire of Tesla’s computer vision team lead, Ethan Knight, in March 2024.

Referring to an early June CNBC article, the complaint claimed Musk “beyond personally directing Nvidia” to deliver graphics processing units (GPUs), the backbone compute power of AI models, bound for Tesla to xAI and X.

Musk said on X at the time that the GPUs “would have just sat in a warehouse,” since Tesla had “no place to send them.”

“Through all of this, Musk’s fellow directors on the Tesla board of directors have done nothing,” the investors said.

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They said the board “utterly failed to even attempt” to discharge its fiduciary duty to Tesla and its stockholders in the face of Musk’s flagrant treachery, allowing him to “generate billions in AI-related value at a firm other than Tesla.”

The lawsuit seeks the value that has been diverted from Tesla returned.

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This year, Tesla Inc. (TSLA) shares dropped 26.5%. Google Finance shows that it closed June 13 at about 3% at $182.47, with a minor 0.13% increase in after-hours trading.

The three linked to Musk’s January X post, in which he expressed unease about expanding Tesla’s robots and artificial intelligence initiatives without around 25% voting control.

Unless that is the case, I would prefer to develop products outside of Tesla,” Musk said.

The shareholders argued Musk’s comment implied he “consciously founded xAI to build outside of Tesla AI-related products that he previously intended to build inside of Tesla.”

At the time of the post, Musk held roughly 21% of the firm, but Delaware’s Chancery Court rejected Musk’s 2018 compensation plan in January, which saw his stake drop to 13%, the lawsuit alleged.

With his voting power damped, “Musk responded by ramping up operations at xAI,” they alleged.

The shareholders’ June 13 decision to reinstate the 2018 pay package still faces a likely months-long tie-up in Delaware’s Chancery and Supreme Courts as Tesla attempts to overturn the earlier rejection.

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