Tesla shareholders are suing CEO Elon Musk and the automaker’s board members over Musk’s decision to launch xAI, which they say is a competing artificial intelligence company, and then divert talent and resources from Tesla in the new startup.
The treatment is one of the more immediate challenges to Musk’s decision to launch xAI and comes after he threatened to develop AI outside of Tesla unless he was given more voting control of the company.
The lawsuit was also filed hours before Tesla is scheduled to host its annual meeting, where shareholders will likely vote to reauthorize a $56 billion compensation package struck down by a judge earlier this year.
Musk has long argued that Tesla’s real value is that it’s not just an electric vehicle maker, but that it’s actually an artificial intelligence company. That claim is one reason why Tesla’s stock price is as high as that of a tech company and more valuable than the top four 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 found a competing company.
Plaintiffs in the case also say Musk violated Tesla’s code of business ethics by creating and guiding xAI, and that the board allowed Musk to continue violating that code unimpeded. They are asking the court to force Musk to divest his xAI stake and hand it over to Tesla.
“The idea that the CEO of a major Delaware company could—with the apparent approval of his board—found a competing company and then divert talent and resources from his company to the startup is preposterous,” the complaint states. He compares Musk’s actions to a hypothetical situation where the CEO of Coca-Cola founds a rival soft drink company and sends 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, soon after, Tesla began diverting talent and resources from Tesla to xAI. The lawsuit says at least 11 employees have joined xAI directly from Tesla and points out how Tesla allegedly gives xAI access to its AI-related data.
Plaintiffs also point out The CNBC report that Musk diverted a large shipment of artificial intelligence processors from Nvidia that had been earmarked for Tesla to social networking company X, formerly known as Twitter. Musk had was posted at X a few weeks ago Tesla would spend $10 billion this year “on combined training and inferential AI,” and also said that Nvidia’s expensive chips will be needed to help Tesla become “a leader in artificial intelligence and robotics ».
Musk admitted in diverting the chips to X, claiming that Tesla’s new data center in Texas was still under construction and had no room to store them.
“The board allowed Musk—Tesla’s CEO and largest shareholder—to found and lead another AI company. to loot resources from Tesla and divert them to xAI. and create billions in AI-related value in a company other than Tesla,” the plaintiffs write. “Consistent with its long history of subservience to Musk, the Tesla Board of Directors has completely failed to attempt to live up to its unyielding fiduciary duty to protect the interests of Tesla and its shareholders in the face of Musk’s brazen disloyalty.”
Earlier this week, other Tesla shareholders filed a separate lawsuit against Musk, claiming he made billions of dollars selling the automaker’s stock in 2021 and 2022 using insider information.
