Tesla Investors Are Suing Elon Musk for Creating Rival AI Company
By finding xAI, the plaintiffs argue that Musk is neglecting his fiduciary duty to Tesla.
Elon Musk is back in the news once again and this time, it’s because Tesla investors are suing him for founding a new rival AI company.
Tesla shareholders are arguing that by finding xAI, a direct competitor of Tesla, Musk is shifting resources away from the electric vehicles company to the startup and therefore, sees Musk breaching his fiduciary duties to the company. The plaintiffs are suing the board and Musk for knowingly moving the resources away to the competing AI company. The lawsuit has been filed in Delaware, which is where the company is still incorporated.
This lawsuit has been one of the most direct challenges towards Musk since he founded xAI in 2023. This comes shortly after Musk has demanded more voting control over Tesla which led him to threaten developing AI outside of the company unless he was offered more. Since Musk has long said that Tesla is more than an electric vehicles company but rather, an AI company, the plaintiffs see xAI as a direct competitor. Because of this claim to be an AI company, Tesla’s stock has enjoyed a higher price than that of other tech companies and considered more valuable than all four top automakers combined. The complaint reads, “The notion that the CEO of a major, publicly traded Delaware corporation could — with the evident approval of his board — start a competing company, and then divert talent and resources from his corporation to the startup, is preposterous.”
xAI was launched in 2023 and recently garnered $6 billion USD in funding. The plaintiffs have noted that Tesla had begun diverting talent and resources from Tesla to xAI since, even saying that at least 11 original employees went to the other company. The plaintiffs also accuse the board for allowing Musk “to found and lead another AI company; to plunder resources from Tesla and divert them to xAI; and to create billions in AI-related value at a company other than Tesla. Consistent with its long history of obsequiousness to Musk, the Tesla Board has utterly failed to even attempt to meet its unyielding fiduciary duty to protect the interests of Tesla and its stockholders in the face of Musk’s brazen disloyalty.”
It remains to be seen how this plays out.
