Tesla investors sue Elon Musk for launching a rival AI company

Several Tesla shareholders are accusing Elon Musk and the company’s board of knowingly diverting talent and resources away from the company and directing it toward Musk’s rival artificial intelligence company, xAI.

In a lawsuit, the shareholders allege that Musk and the board breached their fiduciary duty to Tesla by launching xAI, which was founded in 2023 on the premise of understanding “the true nature of the universe.”

The plaintiffs filed their lawsuit in Delaware, where the company is still incorporated, only hours before Tesla shareholders are set to vote on a proposal to reincorporate the company in Texas after a Delaware court judge voided Musk’s enormous pay package. The lawsuit was first reported by Business Insider and TechCrunch.

They note that, for years, Musk has sought to position Tesla not as a car company but as a robotics and AI powerhouse. The claim helped propel Tesla’s stock price, resulting in the company’s value exceeding that of top automakers combined.

All the while, Musk was “diverting scarce talent and resources from Tesla to xAI, and raised billons of dollars for xAI while touting xAI’s access to Tesla’s AI-related data,” the lawsuit reads. Last week, xAI raised $6 billion in its initial funding round, which it said it will use to bring its first products to market. So far, xAI has launched Grok, a supposedly edgier version of OpenAI’s ChatGPT, which is available via X but only for Premium subscribers.

The plaintiffs also cite a recent CNBC report about Musk ordering thousands of Nvidia-made AI chips destined for Tesla to be diverted to the social media company. In a post on X after CNBC’s story published, Musk said that Tesla lacked the capacity to accept the Nvidia GPUs because the company’s factory in Austin, Texas, is incomplete. He also estimated that Tesla would spend $3–4 billion on AI chips from Nvidia in 2024.

They also cite other posts by Musk suggesting he needs a larger stake in Tesla — to the tune of 25 percent — to feel comfortable growing Tesla into an AI and robotics leader. The plaintiffs also accuse Tesla’s board of doing nothing, allowing Musk “to plunder resources from Tesla and divert them to xAI; and to create billions in AI-related value at a company other than Tesla.”

This isn’t the only shareholder lawsuit to emerge this week. An institutional investor sued the company, claiming Musk earned billions of dollars selling Tesla stock using insider information.