Elon Musk has big plans for his startup xAI. A key part: using his other companies.
The billionaire’s year-old artificial-intelligence bet is relying on talent, data and hardware from his other businesses to help it develop what he has said will become the most powerful AI in the world by December.
So far, xAI has hired at least 11 employees who have worked at Tesla, according to xAI’s website and LinkedIn profiles. That includes six who have worked directly on the Autopilot team focused on AI-powered self-driving technology that Musk has said is pivotal for Tesla’s future.
The startup has leased computer chips critical for AI—called graphic processing units, or GPUs—from his social-media platform X, according to people familiar with the matter, and it boasts access to real-time X data.
Musk also has asked for GPUs that were reserved for Tesla to be redirected to xAI and X. He has talked publicly about the troves of visual data that Tesla collects, which he has said could serve as a resource to train xAI’s models, and said last fall that X shareholders will own 25% of xAI.
“xAI is a fairly new company,” Musk said in an interview with conservative Canadian psychologist Jordan Peterson last month. “So we have a lot of catching up to do relative to companies that have been around for five or 10 or 20 years.”
The concern for some investors is that as Musk shifts manpower and hardware to xAI, his other businesses don’t benefit. Musk has said such sharing benefits investors in all of his companies, but the practice has brought lawsuits and was used as an argument by critics against Tesla giving him a pay package worth tens of billions of dollars.
At least three Tesla shareholders—the electric-vehicle maker is Musk’s only publicly listed company—have filed suits claiming that a shifting of resources to xAI has hurt the carmaker’s investors. Those cases are pending in the Delaware Court of Chancery.
“It’s all going to be problematic,” said Brian Quinn, a law professor at Boston College. “Every time he’s playing with the resources of any of these companies, he’s dealing with other people’s money. He can’t treat all these assets as his own personal assets.”
As recently as last month, Musk was pitching potential collaborations between his companies. He posted a poll on X, asking users if Tesla should invest $5 billion in xAI, and said it was meant to test the waters because any such move would require board and shareholder approval.
After X users voted 68% in favor of the move, Musk posted: “Looks like the public is in favor. Will discuss with Tesla board.”
Musk, Tesla, xAI and X didn’t respond to requests for comment. Musk posted on X last month that xAI, Tesla and X are all looking to hire talent. He also has said previously that hiring employees from his other companies at xAI is a way to prevent prized engineers from going to competitors.
The shifting of resources between Musk’s companies isn’t new. For years, he has used his companies—SpaceX, the rocket startup; Neuralink, the brain-implant chip firm; tunnel maker Boring Co.; and X, the social-media platform, in addition to Tesla and xAI—to help one another.
When Musk bought the company then known as Twitter in 2022, he brought in employees from across his business empire to help with the transition. In court testimony, Musk said the Tesla engineers briefly helped out on a voluntary after-hours basis.
“Did Tesla no longer need those engineers?” a lawyer asked him.
“No. Tesla needed the engineers,” Musk responded.
One of Tesla’s board members said in court testimony that the engineers were paid for their work.
xAI, meanwhile, also has capitalized on its connections to Musk’s network of companies to raise $6 billion in recent months. xAI investors say they were pitched on the idea that xAI could use data from Musk’s other businesses, including Tesla, to train its large-language models.
Some investors said those connections were part of the allure. Musk said in the interview with Peterson that xAI hadn’t yet applied real-world video from Tesla to xAI’s large-language models.
xAI now boasts a $24 billion valuation, second only to OpenAI in terms of size of AI startups. Musk co-founded OpenAI in 2015 and left the company’s board of directors in 2018.
Since its launch in July 2023, xAI has released a chatbot named Grok and is building what Musk has called the biggest data center in the world. Musk’s record of building businesses has engendered loyalty from some investors. Several xAI investors have poured money into the billionaire’s other companies.
Others have bristled at the overlap. The Tesla shareholders behind the recent lawsuits are accusing Musk of violating his fiduciary duties by moving talent and other resources to xAI, seeking damages and asking the court to order Musk to move his equity stake in xAI to Tesla. In one of the suits, shareholders are asking that Musk’s interest in xAI be put in a trust.
Tesla didn’t respond to questions about the lawsuits. Musk said on an earnings call last month that “Tesla is learning quite a bit from xAI. It’s been actually helpful in advancing Full Self-Driving and in building up the new Tesla data center.”
Sharing resources between companies isn’t illegal on its own, if each entity is fairly compensated. But such arrangements are rare at big corporations, and considered fraught practice because they raise concerns that the chief could make decisions for one company at the expense of another.
Negotiating deals—and settling on a price—becomes awkward when a CEO is on opposite sides of the same deal. Among the fears are that conflicted CEOs might want to steer new business to their struggling companies, or pay unfairly low prices in deals with their successful ones.
“The law doesn’t prohibit people from having fiduciary responsibilities to multiple companies,” said Scott Cummings, a law professor at the University of California, Los Angeles. “What the law prohibits is acting in ways that essentially harm one company to the benefit of another.”
Musk might have more leeway with his private companies than with Tesla, but he is still beholden to investors in those firms, including xAI, according to corporate governance experts. The difference is that investors in xAI or Musk’s other private companies might be less likely to take legal action against him.
“In a private company, there might be 10 shareholders where everybody knows everybody,” said Quinn, of Boston College. “It’s much more likely to be resolved with a phone call.”
The stakes are higher with Musk’s public company, Tesla, where he doesn’t own a majority stake. One of the institutional investors suing him is the Employees’ Retirement System of Rhode Island, which says it provides retirement, disability and survivor benefits to roughly 60,000 public employees.
Tesla and xAI each have distinct AI ambitions, putting the companies in an awkward position as they compete for resources. Tesla is trying to develop fully-autonomous driving software and a humanoid robot, in addition to selling electric vehicles.
One of the shareholder lawsuits, filed by the Cleveland Bakers and Teamsters Pension Fund, takes aim at the GPU reallocation between the companies.
“Musk is creating enormous value at xAI—potentially worth hundreds of billions of dollars in the near future—at Tesla’s expense,” according to the complaint.
After CNBC reported that Musk had asked for Nvidia’s chips to be redirected to xAI and X from Tesla, he offered an explanation.
“Tesla had no place to send the Nvidia chips to turn them on, so they would have just sat in a warehouse,” Musk posted on X in June. CNBC cited an internal Nvidia email that said the same number of GPUs would be moved from xAI and X to Tesla at a later date in exchange.
xAI also has ties with another of Musk’s companies: X.
X has contributed $250 million in computing power to the startup, The Wall Street Journal has reported. xAI’s Grok has been made available exclusively on X with a subscription, and xAI engineers have been tasked with fixing problems at X and using xAI’s models to improve X’s features, according to people familiar with the matter.
At an Nvidia conference in March, one of xAI’s head engineers, Igor Babuschkin, said integrating Grok into X was “a nice sort of exercise” but isn’t their main goal, without elaborating.
Alexa Corse, Alexander Saeedy and Deepa Seetharaman contributed to this article.
