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Elon Musk Faces Lawsuit for Shifting Tesla AI Talent to xAI

Key Takeaways

  • Tesla shareholders sued Elon Musk and the board, accusing Musk's xAI startup of diverting AI talent and resources from Tesla;
  • The lawsuit claims xAI hired key Tesla AI employees and used Nvidia GPUs intended for Tesla;
  • Shareholders argue Tesla's board failed in their fiduciary duty, allowing Musk to create significant AI value at xAI without intervention.
Elon Musk Faces Lawsuit for Shifting Tesla AI Talent to xAI

Tesla shareholders have filed a lawsuit against CEO Elon Musk and the company's board, alleging that Musk's xAI startup is siphoning valuable artificial intelligence (AI) talent and resources from Tesla.

The lawsuit was filed on June 13 by the Cleveland Bakers and Teamsters Pension Fund, along with individual shareholders Daniel Hazen and Michael Giampietro, in Delaware's Chancery Court.

They argue that Musk's xAI, described as a "competing company," has been using Tesla's AI expertise and resources to its advantage.

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Tesla is renowned for its AI-driven self-driving technology and advanced driver assistance systems. The plaintiffs claim that Musk has diverted "scarce talent and resources from Tesla to xAI" and has raised significant funds for the startup while "promoting xAI's access to Tesla's AI-related data."

Key to the shareholders' complaint is the accusation that xAI has hired several essential AI-focused employees from Tesla. This includes Ethan Knight, the former leader of Tesla's computer vision team, who joined xAI in March 2024.

Further allegations include Musk redirecting Nvidia's graphics processing units (GPUs), essential for AI model computations, from Tesla to xAI and X, which Musk defended by stating the GPUs were unused at Tesla.

Shareholders criticize Tesla's board for their inaction, claiming they failed to uphold their fiduciary duty by allowing Musk to "create billions in AI-related value at a company other than Tesla" without intervening. The lawsuit seeks the return of the value allegedly diverted from Tesla to xAI.

Investors also highlighted Musk's reluctance to expand Tesla's AI and robotics initiatives without holding at least 25% voting control. This sentiment was expressed in a January X post where Musk stated his preference for building AI products outside Tesla if he didn't have sufficient voting power.

At that time, Musk's ownership in Tesla had dropped to 13% after Delaware's Chancery Court voided his 2018 compensation plan, which initially secured him 21% ownership. On the same day as the lawsuit, Tesla shareholders voted to reinstate Musk's $44.9 billion compensation package.

Overall, the lawsuit underscores the tension between Tesla shareholders and Elon Musk, highlighting concerns over managing the company's AI resources and the potential conflicts of interest with Musk's other ventures.

In other news, Elon Musk has recently threatened to ban Apple devices in his companies if OpenAI's ChatGPT is integrated into iOS, citing security concerns.

Aaron S. , Editor-In-Chief
Having completed a Master’s degree in Economics, Politics, and Cultures of the East Asia region, Aaron has written scientific papers analyzing the differences between Western and Collective forms of capitalism in the post-World War II era.
With close to a decade of experience in the FinTech industry, Aaron understands all of the biggest issues and struggles that crypto enthusiasts face. He’s a passionate analyst who is concerned with data-driven and fact-based content, as well as that which speaks to both Web3 natives and industry newcomers.
Aaron is the go-to person for everything and anything related to digital currencies. With a huge passion for blockchain & Web3 education, Aaron strives to transform the space as we know it, and make it more approachable to complete beginners.
Aaron has been quoted by multiple established outlets, and is a published author himself. Even during his free time, he enjoys researching the market trends, and looking for the next supernova.

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