Tesla shareholders are suing CEO Elon Musk and members of the automaker’s board of directors over Musk’s decision to start xAI, which they say is a competing artificial intelligence company, and then shift talent and resources from Tesla to the new startup.
the lawsuit This is one of the most direct challenges to Musk’s decision to start xAI, and comes on the heels of him threatening to develop AI outside of Tesla unless he is given more voting control at the company.
The lawsuit was also filed just hours before Tesla is scheduled to host its annual meeting, where shareholders will likely vote to re-certify the $56 billion compensation package that a judge struck down earlier this year.
Musk has long claimed that Tesla’s true value is that it is not just an electric car maker, but actually an artificial intelligence company. This claim is one of the reasons why Tesla’s stock price is as high as a technology company’s stock, and more valuable than all of the Big Four automakers combined.
This new complaint was filed Thursday by the Cleveland Bakers and Teamsters Retirement Fund in Delaware Chancery Court, and by Daniel Hazen and Michael Giampietro on behalf of Tesla itself. In it, they allege that Musk and Tesla’s board members breached their fiduciary duties to shareholders and unjustly enriched Musk by allowing the CEO to launch a competing company.
Plaintiffs in the case also say that Musk violated Tesla’s business ethics rules by creating and leading XAI, and that the board allowed Musk to continue violating those rules unhindered. They are asking the court to force Musk to relinquish his stake in XAI and hand it over to Tesla.
“The idea that the CEO of a major, publicly traded Delaware company could — with the express approval of his board of directors — start a competing company and then transfer talent and resources from his company to the startup is preposterous,” the complaint says. He compares Musk’s actions to a hypothetical situation involving Coca-Cola’s CEO creating a competing soft drink company and sending ingredients to it.
Musk launched xAI in 2023 and recently secured $6 billion in funding for the startup that aims to compete with rivals like OpenAI, Microsoft, and Alphabet.
Prosecutors note that soon after, Tesla began transferring talent and resources from Tesla to XAI. The lawsuit says at least 11 employees joined xAI directly from Tesla, and points out how Tesla provided xAI access to its AI-related data.
Plaintiffs also point out CNBC report Musk transferred a large shipment of artificial intelligence processors from Nvidia that were intended for Tesla to his social media company, X, formerly known as Twitter. Musk had it to publish On
Musk admitted To convert the chips into X, claiming that Tesla’s new data center in Texas is still under construction and does not have space to store them.
“The board allowed Musk — Tesla’s CEO and largest shareholder — to found and lead another AI company; to plunder resources from Tesla and funnel them into XAI; and to create billions of dollars of AI-related value at a company other than Tesla,” the plaintiffs wrote. “Consistent with its long history of deferring to Musk, Tesla’s board of directors has completely failed to even attempt to fulfill its unwavering fiduciary duty to protect the interests of Tesla and its shareholders in the face of Musk’s blatant betrayal.”
Earlier this week, other Tesla shareholders File a separate lawsuit against Musk, claiming he made billions of dollars by selling shares of the automaker in 2021 and 2022 using inside information.