Tesla investors sue Elon Musk for allegedly moving talent, resources to xAI

Tesla shareholders sued CEO Elon Musk and other executives for enriching xAI at the auto company’s expense on June 13.

The plaintiffs claimed that xAI, an artificial intelligence firm Musk created in 2023, has poached employees from Tesla, diverted at least $500 million in GPUs from Tesla to X, and used Tesla’s data for xAI development without compensating Tesla.

The plaintiffs also cited a tweet in which Musk stated that he would move AI efforts away from Tesla unless he obtained 25% voting control in the automaker. Plaintiffs said:

“Musk publicly threatened that he would divert corporate opportunities away from Tesla unless Tesla gave him substantial additional equity.”

The case also turns on Musk’s repeated description of Tesla as a predominately AI firm to explain how the growth of xAI has harmed the company, including but not limited to a statement in which Musk called Tesla an “AI/robotics company that appears to many to be a car company.”

According to the filing, Musk’s actions have created hundreds of billions of dollars of value for xAI at a substantial cost for Tesla.

Numerous remedies requested

Plaintiffs have formally accused Musk of allegedly breaching his fiduciary duties at Tesla.

They also accused other Tesla board members of allegedly breaching their fiduciary duties in the same way. The plaintiffs also state that each board member cannot impartially consider a demand against Musk.

In another charge, the plaintiffs accused Musk of unjust enrichment related to the flow of staff and resources between the companies, stating:

“It would be unconscionable to permit Musk to retain the improper benefits.”

The plaintiffs asked the court to award Tesla damages related to the staffing and resource diversion, compel Musk to disgorge his equity stake in Tesla, and impose a constructive trust over Musk’s interest in xAI, among other remedies.

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