Tesla shareholders are suing CEO Elon Musk and members of the automaker’s board of directors over Musk’s decision to start xAI, which they say is a competing AI company, and then divert talent and resources from Tesla in the new startup.
The lawsuit is one of the most direct challenges to Musk’s decision to start xAI, and comes after he threatened to develop AI outside of Tesla unless he was given more voting control over the company.
The lawsuit was also filed just hours before Tesla is scheduled to host its annual meeting, where shareholders are likely to vote to ratify the $56 billion compensation package that was struck down by a judge earlier this year.
Musk has long maintained that Tesla’s true value is that it’s not just an electric vehicle maker, but that it’s actually an AI company. That claim is one reason Tesla’s stock is priced as high as a tech company and more valuable than all four major automakers combined.
This new complaint was filed Thursday by the Cleveland Bakers and Teamsters Pension Fund in Delaware Chancery Court, Daniel Hazen and Michael Giampietro on behalf of Tesla itself. In it, they allege that Musk and Tesla’s board members breached fiduciary duties to shareholders and unjustly enriched Musk by allowing the CEO to launch a competing company.
The plaintiffs in the case also say that Musk violated Tesla’s code of business ethics by creating and leading xAI and that the board has allowed Musk to continue to violate that code without hindrance. They are asking the court to force Musk to divest his shares in xAI and turn them over to Tesla.
“The notion that the CEO of a large publicly traded Delaware corporation could — with the apparent approval of his board — launch a competing company, and then divert talent and resources from his corporation to the startup, is absurd,” it said. in the complaint. He compares Musk’s actions to a hypothetical situation involving the CEO of Coca-Cola creating a rival soft drink company and shipping ingredients to it.
Musk launched xAI in 2023 and recently raised $6 billion in funding for the startup that aims to compete with rivals like OpenAI, Microsoft and Alphabet.
Plaintiffs note that, shortly thereafter, Tesla began diverting talent and resources from Tesla to xAI. The lawsuit says at least 11 employees have joined xAI directly from Tesla and details how Tesla allegedly provided xAI access to its AI-related data.
The plaintiffs also point to CNBC reporting that Musk diverted a sizeable shipment of AI processors from Nvidia that had been reserved for Tesla to his social media company X, formerly known as Twitter. Musk had posted on X a few weeks ago that Tesla would spend $10 billion this year “on combined training and inference artificial intelligence,” and he also said that Nvidia’s pricey chips would be needed to help Tesla grow to a “leader in AI and robotics”. “
Musk agreed for diverting the chips to the X, claiming that Tesla’s new data center in Texas was still under construction and there was no room to store them.
“The board has allowed Musk — Tesla’s CEO and largest shareholder — to found and run another AI company; to steal resources from Tesla and divert them to xAI; and to create billions in AI-related value in a company other than Tesla,” the plaintiffs wrote. “Consistent with its long history of insensitivity to Musk, the Tesla Board has completely failed to even attempt to fulfill its unwavering fiduciary duty to protect the interests of Tesla and its shareholders in the face of Mr. Shame on Musk.”
Earlier this week, other Tesla shareholders filed a separate lawsuit against Musk, alleging that he made billions of dollars selling the automaker’s stock in 2021 and 2022 using insider information.