Elon Musk, CEO of Tesla and the world’s richest person, announced plans to discuss a $5 billion investment in his artificial intelligence startup, xAI, with Tesla’s board. This move has raised questions about potential conflicts of interest, especially given that xAI was launched last year to rival Microsoft-backed OpenAI, a company Musk co-founded.
The proposed investment has been supported by many of Musk’s followers. Earlier this week, Musk conducted a poll on social media platform X, where he asked whether Tesla should invest in xAI. Out of nearly 1 million responses, over two-thirds supported the investment. The exact number of respondents who are Tesla investors remains unclear.
This poll followed a report from Tesla stating that its second-quarter automotive gross margin and profits did not meet Wall Street expectations, partly due to price cuts and sales incentives. Despite these financial concerns, Musk mentioned in a Tesla earnings call that xAI could advance Tesla’s full self-driving capabilities and support the development of a new Tesla data center. He also noted potential integrations of xAI’s chatbot, Grok, with Tesla’s software.
However, Brent Goldfarb, a business school professor at the University of Maryland, expressed skepticism about the benefit of this investment for Tesla shareholders, citing it as a possible transfer of wealth from Tesla to xAI. He also remarked on the uncertain profitability of AI ventures, describing the industry as being in a “bubble” phase.
Musk’s involvement in AI development has been complex; he left OpenAI in 2018 due to potential conflicts with Tesla’s self-driving technology. More recently, in April, Musk revealed that xAI is hiring engineers from Tesla, partly to retain talent amidst competition from OpenAI.
xAI itself has been successful in securing funds, raising $6 billion in a Series B funding round in May, valuing the company at $24 billion. High-profile investors like Andreessen Horowitz and Sequoia Capital participated in this round. Musk has also mentioned that he intends for X investors, whom he joined after purchasing the platform for $44 billion, to own a quarter of xAI, despite the platform’s decreasing value since the acquisition.
Musk has faced prior criticism regarding conflicts of interest with his various ventures. Notably, some Tesla shareholders criticized the 2016 acquisition of SolarCity, a struggling company founded by Musk and his cousins, as a bailout. However, last year, the Delaware Supreme Court ruled that Musk did not coerce Tesla into overpaying for SolarCity.
