Musk’s xAI has discussed deal for share in future Tesla revenue

Elon Musk’s AI startup xAI has discussed a deal where it would get some Tesla revenue in exchange for providing the carmaker access to its technology and resources, the latest example of the growing interconnectedness of Musk’s companies.

Under a proposed arrangement as described to investors, Tesla would license xAI’s AI models to help power its driver-assistance software, called Full Self-Driving, and share some of that revenue with the startup, according to people familiar with the matter. xAI would assist in developing other features for Tesla, including a Siri-like voice assistant inside its electric cars and software to power its humanoid robot Optimus, the people said.

The terms of any revenue-sharing agreement between xAI and Tesla would depend in part upon how extensively Tesla relied on xAI’s technology as opposed to its own, the people said. xAI executives have discussed an even revenue split from Tesla’s FSD, one of the people said.Musk has bet the future of Tesla on robotics and artificial intelligence. FSD costs Tesla drivers $99 a month or a flat fee of $8,000 to use the service, which requires drivers to keep their hands on the wheel. The company is also developing a robotaxi, which is scheduled to be unveiled Oct. 10. It is unclear when it will be made available to the public.

Musk has promised for years that FSD will advance enough to make all Teslas fully autonomous and suggested that success could turn Tesla into a multitrillion-dollar company. Musk also has said Tesla would be worth “basically zero” without full autonomous driving.

Formalizing a partnership with xAI in which Tesla would hand over some of its revenue and future AI development to a separate Musk-controlled company would add to the tech mogul’s practice of sharing assets freely across his business empire.Musk is already shifting talent and hardware between xAI and Tesla as he plays catch-up in the AI race, raising concerns about potential conflicts of interest. There is particular scrutiny around how Musk shares resources of Tesla, which is publicly traded. Several Tesla shareholders have filed suits claiming that the shift in resources to xAI has hurt the carmaker’s investors. The cases are pending in the Delaware Court of Chancery.

xAI has hired multiple employees from Tesla, including several who have worked directly on the Autopilot team focused on developing self-driving capabilities. Musk also diverted thousands of hard-to-get Nvidia GPUs from Tesla to xAI last year. After that move became public, Musk said that “Tesla had no place to send the Nvidia chips to turn them on, so they would have just sat in a warehouse.”

In pitches to investors, xAI representatives have described the company as a future key technology provider for Tesla’s suite of software products, the people familiar with the possible revenue-sharing agreement said.

In a July post, Musk asked X users if Tesla should invest $5 billion into xAI. Two days later, he posted: “Looks like the public is in favor. Will discuss with Tesla board.”

Musk has historically awarded companies that help his other businesses with their equity. Musk previously said he would give investors in his $44 billion X acquisition a quarter ownership in xAI. Grok, xAI’s chatbot, is integrated into X, and the two companies share some resources.

“Tesla is learning quite a bit from xAI,” Musk said on a July conference call with investors after the company reported earnings. “It’s been actually helpful in advancing Full Self-Driving and in building up the new Tesla data center.” He also said there were opportunities to integrate xAI’s Grok chatbot into Tesla’s software.

In May, xAI raised $6 billion at a $24 billion valuation from investors including Sequoia Capital, Andreessen Horowitz, Valor Equity Partners, and Saudi Prince al-Waleed bin Talal and Kingdom Holding. This month, the company launched a new data center in Tennessee, dubbed Colossus, which Musk said is “ the most powerful AI training system in the world.”

Musk has also said Tesla would spend $10 billion in capital expenditures this year to build out its AI capabilities. “If somebody doesn’t believe Tesla is going to solve autonomy, I think they should not be an investor in the company,” Musk told investors on an April earnings call. It is unclear how the deal with xAI would affect Tesla’s spending.

Tesla has heavily invested in building out its data-center capabilities, including by developing special chips for a supercomputer it calls Dojo, with data centers in Palo Alto, Calif., and Austin, Texas, and plans for one in Buffalo, N.Y. Employees at xAI and Tesla have advised each other on the design and construction of their data centers, people familiar with the matter said. Tesla’s sales and profits have taken a tumble amid increasing competition in the electric-vehicle market, with its stock down about 14% this year through Friday.

—Tom Dotan and Meghan Bobrowsky contributed to this article.

Write to Berber Jin at berber.jin@wsj.com and Becky Peterson at becky.peterson@wsj.com