Whereas Tesla shareholders are centered on giving Elon Musk an enormous CEO compensation package deal, there’s a probably much more impactful proposal that’s sneaking by: Tesla investing in Musk’s xAI.
Listed below are the professionals and cons of this controversial proposal.
Tesla Shareholder Proposal to spend money on xAI
For these unaware, xAI is Elon Musk’s personal AI startup behind the massive language mannequin (LLM) and generative AI Grok.
The corporate now additionally consists of X, previously Twitter, after Musk orchestrated a merger between the 2 corporations earlier this yr.
xAI’s origin is fascinating and comes from Musk’s long-standing obsession with controlling AI.
I printed an in depth timeline of Musk’s try to achieve management of AI in a report primarily based on emails and textual content messages launched by lawsuits between Musk and OpenAI earlier this yr:
Briefly, Musk tried to achieve full management of OpenAI, however he failed. He moved his AI effort to Tesla, however he then misplaced management after promoting too many shares to amass Twitter. So he moved his AI effort to a brand new personal firm xAI.
Tesla shareholders at the moment are suing the billionaire for breach of fiduciary responsibility for beginning xAI, which competes for expertise with Tesla.
Many specialists consider shareholders have a powerful case, as Musk cited a “battle of curiosity” with Tesla’s personal AI effort when leaving OpenAI. The CEO even threatened Tesla shareholders to not construct AI merchandise on the firm if he didn’t achieve extra management by the next share of Tesla’s shares.
Shareholders are requesting that Musk switch his possession of xAI to Tesla.
Nevertheless, the case will take a very long time to undergo the courtroom system. In the meantime, different Tesla shareholders are suggesting that Tesla use its personal cash to spend money on xAI immediately.
They submitted a proposal that’s as much as a vote at Tesla’s upcoming shareholders assembly on November sixth:
RESOLVED, that shareholders of Tesla, Inc. (the “Firm”) request that the Board of Administrators authorize an funding in xAI, in an quantity and type deemed acceptable by the Board.
WHEREAS, an funding in xAI would offer Tesla with a stake in a serious AI participant, probably yielding vital monetary returns whereas fostering technological developments that profit Tesla’s prospects and shareholders.
As you’ll be able to see, the proposal leaves it to the board to resolve the complete quantity to speculate into Musk’s personal firm.
Curiously, that is the one shareholder proposal on which the board hasn’t taken a place. It’s asking shareholders to vote in opposition to all different proposals, even one that’s pushing for an audit to keep away from contributing to little one labor.
The shortage of a vote suggestion from the board, which is seen as being beneath Musk’s management, is extensively interpreted as a suggestion to vote for it. Nevertheless, Musk and the board should abstain as a result of ongoing lawsuit concerning xAI.
Does it make sense for Tesla to spend money on xAI?
The Good
Clearly, it’s an funding and also you wish to get a return on it. The primary “good factor” to return out of that is if xAI by some means manages to beat all the opposite extraordinarily well-funded and well-staffed competitors into creating an actual normal AI.
Contemplating xAI is considerably behind the competitors in most revenue-generating AI-backed merchandise and it’s reportedly valued at greater than $200 billion, Tesla is arriving late to the corporate, and realistically, it might solely obtain a major return on funding by AGI.
The one different potential profit could be expertise sharing, however an funding doesn’t truly assist that a lot there.
Most different automakers have already partnered with AI corporations to combine LLMs of their autos. Tesla has already carried out so with Grok earlier than investing in xAI.
Briefly, any expertise partnership will be carried out with out an funding within the firm, as they’ve already proven.
If something, it might create one other round economic system, which is all the fashion within the AI world nowadays.
The Dangerous
It’s clearly a dangerous funding, and Tesla could be getting into at an already substantial valuation of roughly $200 billion – or much more, relying on when the spherical closes.
As compared, OpenAI is reportedly valued at $500 billion, and it’s estimated to have 700-800 million weekly customers.
In the meantime, xAI’s is estimated to have ~30 million weekly customers.
As acknowledged within the “good”, xAI has little probability of catching as much as the competitors by way of revenue-generating AI companies except it may well bypass all of them by AGI, which is a large gamble.
Because of its heavy funding in computing energy, xAI is believed to have a burn fee of roughly $10 billion per yr.
AI corporations are additionally amortizing their compute at completely different charges, and lots of analysts fear that some are overestimating the lifespan of these chips.
Many of the $14 billion xAI raised in its first 2 years was reportedly passed by early 2025, and the corporate is now rumored to be closing a brand new spherical of financing between $10-20 billion. With the present burn fee, xAI goes to need to repeat this stage of funding yearly for the foreseeable future.
SpaceX is rumored to be investing about $2 billion in xAI’s present financing spherical.
With Tesla’s personal income shrinking over the past three years, it’s not able to maintain such a excessive burn fee with $2 billion in investments yearly.
At its present earnings fee, most of its early earnings would go into xAI with an identical funding as SpaceX.
The Ugly
Probably the most exceptional side of this case is that the Tesla shareholders suing Musk and the board over the funding of xAI have a compelling case.
There’s an actual probability that Tesla might find yourself proudly owning xAI with out even having to spend money on it, because the chief executives of public corporations usually are not allowed to create competing personal corporations and funnel assets between them, which is precisely what Musk did.
Previous to beginning xAI, Musk himself stated that Tesla was an “AI” firm. As a substitute of doing the proper factor and incorporating the xAI effort into Tesla, he determined to do it privately as a result of he wasted a big share of his Tesla possession on shopping for an inflated Twitter.
Talking of Twitter, Tesla would actually be investing in an again-inflated Twitter.
Musk offered tens of billions of {dollars} value of Tesla shares to purchase Twitter at $44 billion valuation, which he himself admitted was inflated.
Personal buyers wrote off many of the valuation over the subsequent 3 years. As of late 2024, it was reportedly value solely $9 billion, however then Musk, a grasp of self-dealing, had xAI purchase it/merge with it, magically elevating its valuation again to $44 billion.
This additionally contributes to inflating any funding in xAI.
Lastly, and maybe essentially the most troubling side of this complete factor, Tesla, which has as its mission to speed up the world’s transition to renewable vitality, could be investing in an organization that at present primarily produces AI slop that consumes a ton of vitality for questionable makes use of, together with a particularly controversial AI companion program.
Briefly, Elon Musk is double-dipping into Tesla to maintain his obsession with controlling AI alive.
