Tesla investors sue Elon Musk for starting a new AI company

Tesla shareholders are suing CEO Elon Musk and the company’s board for allegedly taking employees and resources to work on his new AI project, xAI, and breaking their fiduciary duties. The lawsuit demands that Musk give up his xAI shares and return them to Tesla.

People who own shares in Tesla are suing CEO Elon Musk and members of the company’s board of directors for starting xAI, which they see as a competing AI company, and then taking employees and resources from Tesla to work on it.

One of the strongest responses to Musk’s decision to launch xAI is the lawsuit, which follows his declaration that he would work on AI outside of Tesla unless he received more voting power in the company.

The suit was also filed just a few hours before Tesla’s annual meeting, where shareholders are likely to vote again to approve the $56 billion pay package that was thrown out by a judge earlier this year.

Musk has said for a long time that Tesla’s real value lies in the fact that it’s not just an electric car company but also an AI company.

This claim is one reason why Tesla’s stock is worth as much as a tech company’s and more than the four biggest automakers combined.

The Cleveland Bakers and Teamsters Pension Fund sent the new complaint to the Delaware Chancery Court on Thursday.

Daniel Hazen and Michael Giampietro filed on Tesla’s behalf. They claim that Musk and other members of Tesla’s board broke their duty to shareholders and got rich by letting the CEO start a competing business.

The people suing also allege that Musk violated Tesla’s code of business ethics by starting and running xAI and that the board has allowed Musk to continue breaking this code without stopping him. They’re asking the court to make Musk give up his share of xAI and give it to Tesla.

The complaint states that it is absurd to believe that the CEO of a large, publicly traded Delaware corporation could start a competing company with the clear approval of his board and then transfer talent and resources from his corporation to the startup.

It says Musk’s actions are like a made-up situation in which Coca-Cola’s CEO starts a competing soft drink business and sends its ingredients.

Musk began xAI in 2023 and recently raised $6 billion for the company, which wants to compete with OpenAI, Microsoft, and Alphabet.

Allegations Against Musk and Tesla in xAI Lawsuit

The plaintiffs say that soon after, Tesla started sending employees and resources from Tesla to xAI. The lawsuit says that at least 11 employees came from Tesla and joined xAI directly. It also says that Tesla gave xAI access to its AI-related data.

The plaintiffs also cite a claim that Musk gave his social media company X, formerly known as Twitter, a large shipment of AI processors intended for Tesla.

Musk announced on X a few weeks ago that Tesla would invest $10 billion this year in combined training and inference AI. He also stated that Tesla would require high-end Nvidia chips to become a leader in AI and robotics.

Musk said that Tesla’s new data centre in Texas wasn’t ready yet and wouldn’t have room to store the chips, so he gave them to X instead.

They say, “The Board has allowed Musk, as CEO and largest shareholder of Tesla, to start and run another AI company; to steal resources from Tesla and give them to xAI; and to create billions of dollars in AI-related value at a company other than Tesla.”

The Tesla Board has a long history of pandering to Musk, it has not even tried to live up to its unwavering duty to protect Tesla and its stockholders’ interests in the face of Musk’s brazen disloyalty.

Other Tesla shareholders sued Musk separately earlier this week, saying he made billions of dollars using insider information to sell the company’s stock in 2021 and 2022.