When Elon Musk, the CEO of Tesla, founded an xAI venture that generated “billions in AI-related value at a company other than Tesla,” investors accused Musk of displaying “brazen disloyalty.”
On Thursday, investors in Tesla filed a lawsuit against the company’s board and CEO Elon Musk, arguing that Musk’s xAI startup is a “competing company” that is stealing the company’s resources and expertise for artificial intelligence.
On the same day that a Delaware judge had invalidated Musk’s $44.9 billion compensation package in January, shareholders decided to reinstate it.
On behalf of Tesla, Daniel Hazen, Michael Giampietro, and the Cleveland Bakers and Teamsters Pension Fund filed the stockholder action in Delaware’s Chancery Court on June 13.
They assert that Musk raised billions of dollars for the firm while “touting xAI’s access to Tesla’s AI-related data” and transferred “scarce talent and resources from Tesla to xAI.”
The automaker has long bragged about the driver assistance features and AI-backed self-driving capabilities of its vehicles.
The trio said that in March 2024, Musk’s xAI hired “many key AI-focused employees from Tesla,” including Ethan Knight, the head of Tesla’s computer vision team, who was the “most significant” hire.
The lawsuit claimed that Musk “began personally directing Nvidia” to move graphics processing units (GPUs), which are the primary computing capacity of AI models, headed for Tesla to xAI and X. It cited a report from CNBC that was published early in June.
Musk said at the time on X that since Tesla has “no place to send them,” the GPUs “would have just sat in a warehouse.”
The shareholders declared, “Throughout all of this, Musk’s fellow directors on the Tesla board of directors have done nothing.”
In the face of Musk’s blatant betrayal, they said, the board “utterly failed to even attempt” to fulfill its fiduciary obligation to Tesla and its investors, enabling him to “create billions in AI-related value at a company other than Tesla.”
The recovery of “value that has been diverted from Tesla” is demanded in the case.
This year, shares of Tesla Inc. (TSLA) have decreased by 26.5%. Google Finance reports that on June 13, it closed nearly 3% higher at $182.47, with a minor 0.13% increase in after-hours trading.
The three cited Musk’s January X post, in which he expressed discomfort over Tesla’s AI and robotics programs expanding without granting him about 25% of the company’s voting rights.
Musk continued, “I would prefer to build products outside of Tesla unless that is the case.”
Musk held about 21% of the business at the time of the post, but according to the lawsuit, in January Delaware’s Chancery Court revoked Musk’s 2018 compensation plan, resulting in a 13% ownership stake.
They said that after his ability to vote was curtailed, “Musk responded by ramping up operations at xAI.”
Tesla is fighting to reverse the earlier rejection, so the shareholders’ June 13 vote to reinstate the 2018 pay pack still faces a potential months-long legal battle in Delaware’s Chancery and Supreme Courts.
When a comment was requested, Tesla did not immediately answer.
