Elon Musk, who already urged Tesla spend money on xAI, is now setting the stage for the general public firm beneath his management to grossly overpay for xAI, a personal firm beneath his management that simply absorbed Twitter (X).
Anybody invested in a mutual fund that owns Tesla shares could possibly be about to bail out Musk and his billionaire associates.
At $44 billion, Musk knew he was overpaying for Twitter and tried to again out of the deal.
Inside a 12 months of Musk taking Twitter personal, Constancy Investments, which invested in Musk’s Twitter acquisition, revalued its funding as being down 65% from its buy value.
A 12 months later, in October 2024, Constancy valued Twitter, X by now, at simply $10 billion.
That’s not shocking since Musk had Twitter tackle $12 billion in debt as a part of the take-private deal, and income fell by roughly half beneath his management.
To take Twitter personal, Musk personally financed the take care of $25 billion of his personal and his current stake in Twitter, $12 billion in debt, and about $7 billion in funding from his associates.
As of October, most of that fairness was gone, however Musk wasn’t about to let a loss slide on his document.
In 2023, he launched xAI, a personal firm beneath his management that develops AI merchandise. Tesla traders are suing him for breach of fiduciary responsibility and useful resource tunneling over the founding of xAI since he had beforehand acknowledged that Tesla can be an enormous participant in AI and concurrently threatened to not construct AI merchandise at Tesla if he didn’t get extra management of the corporate, however let’s put that apart for now.
When elevating cash for xAI in 2023, Axios reported on how Musk may use the AI firm as a “plan B to avoid wasting Twitter” and Musk responded:
“I’ve by no means misplaced cash for individuals who spend money on me and I’m not beginning now.”
Who’re these individuals who invested in Twitter with Musk? There’s a protracted listing, however two of the largest traders are Prince Alwaleed bin Talal, a Saudi Arabian billionaire and head of Kingdom Holding Firm, and Larry Ellison, billionaire co-founder of Oracle. Each are shut associates of Musk.
VC corporations Andreessen Horowitz and Sequoia Capital, Qatar’s sovereign wealth fund, the extremely controversial crypto trade Binance, and the beforehand talked about Constancy Investments have additionally invested within the deal.
By the top of 2024, these folks had been principally writing down 80% of their funding in Twitter, as per Constancy.
Nevertheless, a couple of months later, in March 2025, X was in some way valued again at $44 billion as a part of a “so-called secondary deal.” Some took this data as information that X had rotated, however many had been skeptical that the valuation might have gone from $10 billion to $44 billion in simply 5 months.
Positive sufficient, we rapidly discovered that the brand new valuation had little to do with improved financials at X and was as an alternative primarily based on Musk pushing for xAI to purchase X at $45 billion by an all-stock acquisition. An organization’s valuation is just what somebody is keen to pay for it and Musk was keen for xAI to “pay” $45 billion.
In late March, Musk introduced that xAI had acquired X in a deal valuing xAI at $80 billion and X at $45 billion, whereas xAI would tackle X’s $12 billion debt.
The world’s richest man was not shy about highlighting the controversial self-dealing right here:
It’s value noting that xAI had raised solely $12 billion at a $40 billion valuation with nearly no income as of December 2024, and now it’s a $125 billion firm, primarily based fully on Musk’s valuation, with $12 billion in debt.
How does Tesla performs into this?
Musk has promised Tesla shareholders that the Twitter acquisition can be good for the corporate. That was after he offered tens of billions of {dollars} value of Tesla shares to purchase Twitter – sending Tesla’s inventory crashing.
Tesla shareholders haven’t actually seen a return on that but except you rely a short surge in inventory value after Trump was elected, with the assistance of Musk and X, however the inventory has since erased all these positive factors since Trump got here into workplace.
Now, xAI is the plan B.
Final summer season, Musk urged that Tesla invests $5 billion in xAI, however that was earlier than the corporate acquired X. Musk will want shareholder’s approval for a deal between xAI and Tesla, which might occur at Tesla’s shareholders assembly – usually held in June.
Now, Tesla’s CEO, who has been complaining about his eroding management of Tesla after promoting shares to purchase Twitter, has tremendously inflated the worth of xAI by this acquisition of X forward of the potential funding.
Musk has additionally mentioned Tesla integrating Grok, xAI’s massive language mannequin, into its merchandise, particularly its electrical automobiles.
A publish on X this weekend urged that this could be occurring quickly:
ChatGPT, OpenAI’s LLM, has already been built-in in lots of automobiles, together with from the Volkswagen Group, Peugeot, and Mercedes-Benz.
Electrek’s Take
The grift by no means stops. As I’ve been saying for years, Musk shouldn’t be geared up to be an government of a public firm, and that is simply the most recent instance.
If all these entities had been personal, and he was taking his prosperous personal investor associates on a journey, I wouldn’t have any drawback with this, however Tesla is a public firm included in lots of ETFs and mutual funds. Many individuals personal Tesla shares with out even understanding.
However as Musk mentioned himself, he doesn’t let individuals who invested in him lose cash. Does that embrace Tesla traders?
I don’t assume it does anymore.
There’s an argument to be made that Tesla shareholders ought to already personal Musk’s stake in xAI. That’s what the breach of fiduciary responsibility lawsuit is about. Musk mentioned that Tesla was “a world chief in AI’ and mentioned that AI merchandise can be vital to the corporate’s future.
Then, he begins a personal AI firm and threaten Tesla shareholders that he is not going to construct AI merchandise at Tesla if he doesn’t get greater than 25% management over the corporate. That’s a transparent breach of fiduciary duties to Tesla shareholders because the CEO of Tesla, however it would probably take years to resolve this by courts.
Within the meantime, Musk is pushing for Tesla to spend money on xAI, which is now valued at $125 billion – a quantity utterly made up by Musk.
Grok shouldn’t be a nasty product, but it surely ranks under OpenAI’s ChatGPT and Google’S Gemini in most AI rankings. It additionally depends too closely on data from X, which is way from dependable. Most specialists see xAI as being means behind OpenAI and different AI corporations, that are already producing important income.
Now, I doubt Musk will nonetheless push for a $5 billion funding from Tesla. I don’t assume that Musk will need Tesla to spend 15% of its money place on this amid delcinign earnings and a really tough macroeconomic scenario.
I wouldn’t be shocked to see Musk pushing for Tesla to spend money on xAI as a part of a inventory deal.
The timing can be good for Musk. Tesla’s present model points, decrease deliveries, crashing earnings have led to a a lot decrease share value on prime of the crashing US inventory market. If Tesla’s share value is decrease, Musk can get extra shares for his made-up valuation of xAI.
Musk probably owns greater than 50% of xAI publish X acquisition. A inventory deal would nearly end in him getting half of the Tesla shares which might be a part of the deal – boosting his stake in Tesla, which has been his aim since promoting his stake to purchase an overpriced Twitter.
Briefly, Musk offered Tesla shares to purchase an overpriced Twitter, regretted it and threatened Tesla shareholders to get extra shares. Now, he may get Tesla shareholders to pay for the acquisition once more on the similar ridiculous valuation.
The craziest factor about all of that is that I wager Tesla shareholders are going to approve this scheme.
