Elon Musk To Discuss $5 Billion xAI Investment With Tesla Board

Elon Musk is to discuss the potential transfer of billion of dollars from one of his ventures to another, raising concerns about a potential conflict of interest.

This week Elon Musk launched a poll on X (formerly Twitter) to “test the waters”, in which he asked whether Tesla should invest $5 billion into his AI venture known as xAI.

Nearly 1 million people voted, with 67.9 percent backing the funding deal and 32.1 percent voting against the transfer of resources from one Musk venture to another.

But this was a social media poll, and both Tesla’s board of directors and its investors could potential strongly object to making such a huge investment in another company.

Tesla investment

Musk’s poll came on the heels of Tesla posting its lowest profit margin in five years, amid EV price cuts by many electric vehicle manufacturers, falling demand for EVs, and increased spending on AI projects, all of which prompted a 8 percent fall in Tesla’s share price.

Musk in his poll about the $5 billion Tesla investment in xAI had noted the need for board and shareholder approval, and on Thursday Musk tweeted he would discuss the investment with Tesla’s board.

Musk had launched the artificial intelligence start-up xAI in July 2023, despite his well documented concerns about the technology.

AI researchers and tech industry figures including Elon Musk had signed an open letter in March 2023 warning that AI systems could pose “profound risks to society and humanity”.

Musk’s intention however with xAI is to challenge Microsoft-backed OpenAI’s ChatGPT with a ‘pro-humanity’ alternative offering, as well as take the fight to other well funded AI startups.

In November 2023 xAI had released a chatbot called Grok, which was touted as a “sarcastic” AI chatbot that Musk said was modelled on The Hitchhiker’s Guide to the Galaxy. Musk has also criticised AI competitors for being too politically correct.

In March 2024 Musk said he would open source Grok, in apparent dig at OpenAI, which he sued in March for “abandoning” its non-profit mission.

OpenAI immediately dismantled Musk’s allegations by quoting his own emails and statements against him, made when Musk was involved in OpenAI (Musk had left OpenAI in 2018 because of a potential future conflict with Tesla, which was developing AI software for self-driving vehicles).

In June this year Musk dropped his lawsuit against OpenAI, and then also threatened to ban Apple devices at his workplaces over Tim Cook’s plan to incorporate ChatGPT into Apple devices.

xAI funding

It should be Musk’s xAI has already received huge amounts of funding.

Musk had in December 2023 filed with the US securities regulator to raise up to $1 billion in an equity offering.

But in May 2024 it was revealed that xAI had raised $6 billion in funding from major venture capital firms Lightspeed Venture Partners, Andreessen Horowitz, Sequoia Capital and Tribe Capital in a round that valued the company at $24 billion (£18.8bn).

xAI said at the time that that $6 billion in funding would be used to bring its first products to market, build advanced infrastructure and accelerate research and development of future technologies.

During Tesla’s earning conference call on Tuesday, Musk had said xAI would be “helpful in advancing full self-driving and in building up the new Tesla data centre,” adding that there are opportunities to integrate xAI’s chatbot, Grok, with Tesla’s software.

Musk has previously said he plans for a quarter of xAI to be owned by investors in X.

This is not the first time that Musk has faced criticism over potential conflicts of interest among the many companies he owns and runs.

One of the most notable cases came in 2016 when some Tesla shareholders alleged the $2.6 billion acquisition in 2016 of struggling rooftop solar company, SolarCity (founded by Musk and his cousins), had amounted to a bailout.

In 2023 the Delaware Supreme Court upheld a ruling that Musk did not push Tesla to overpay for SolarCity.