Three weeks ago, Elon Musk’s artificial intelligence company xAI revealed that it had raised $20 billion in Series E funding round. We now know that Tesla is among its investors.
Tesla revealed in a letter to shareholders on Wednesday that it has invested $2 billion in xAI, the startup behind chatbot Grok that also owns Musk’s social networking company X. But previously disclosed Investors in xAI include Valor Equity Partners, Fidelity, Qatar Investment Authority, as well as Nvidia and Cisco as “strategic investors.”
This is a truly circular deal, and one that Tesla shareholders voted down last year. In November, shareholders were asked in a non-binding measure to allow Tesla’s board of directors to approve an investment in xAI. About 1.06 billion votes were in favor and 916.3 million against, per The Bloomberg report at that time. While that looked like approval, the number of abstentions — which count as votes against Tesla’s bylaws — meant the measure was rejected.
Tesla went ahead anyway and offered an argument, in its shareholder letter and during its earnings call, in support of the investment. Tesla’s justification seems to be tied to xAI’s alignment with the latest master plan — and how these companies are about to get much closer.
“As set out in Part IV of the Master Plan, Tesla builds products and services that bring artificial intelligence to the physical world. Meanwhile, xAI develops leading digital artificial intelligence products and services, such as the large tongue model (Grok),” the letter to shareholders said. “In this context, and as part of Tesla’s broader strategy under Master Plan Part IV, Tesla and xAI have also entered into a framework agreement in connection with the investment.”
Tesla said the deal builds on an existing relationship with xAI “by providing a framework for evaluating potential AI partnerships between the companies.” Tesla is already supplying Megapack batteries to power xAI data centers, Musk confirmed last yearand the company has included xAI chatbot Grok in some of its vehicles. Bloomberg was also mentioned that xAI told investors it plans to build AI for humanoid robots like Tesla’s Optimus.
Musk noted that there is a lot of work Tesla can do internally. “But if there are things that xAI can help accelerate our progress, then why not do that?” he asked. “And that’s why we made such an investment. Because this is part of the strategic initiative.”
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In its letter to shareholders, Tesla highlighted these and other developments in natural artificial intelligence and robotics, including plans to develop the Optimus robot, semi-trucks and other autonomous capabilities. The company broadly beat Wall Street estimates for earnings and revenue, but profits fell 46% last year.
“Together, the investment and related framework agreement are intended to strengthen Tesla’s ability to develop and deploy artificial intelligence products and services in the physical world at scale,” Tesla said in the shareholder letter.
The investment is expected to close in the first quarter.
Musk and Tesla CFO Vaibhav Taneja signaled during the company’s earnings call that it expects other capital expenditures that support its mission.
“This year for Tesla is the first major steps as we increase vehicle autonomy and start producing Optimus robots at scale – we’re making very, very big investments,” Musk said on the call. “So that’s going to be a very big chapter here; that’s intentional, because we’re making big investments for an epic future.”
