Elon Musk’s Ventures and Controversies
Elon Musk is well known for his many ventures as well as his disdain for convention. While serving as the CEO of Tesla, Inc., Musk acquired Twitter (now X Corp.) and founded a private AI-focused company, X.AI Corp. (not to be confused with X/Twitter). The Cleveland Bakers and Teamsters Pension Fund, a Tesla shareholder, and two other shareholders, have sued Musk for diverting AI assets from Tesla to X and xAI, and the Tesla board for failing to stop Musk.
Tesla as an AI Company
Most of us think of Tesla as one of the world’s leading EV manufacturers, but Musk has repeatedly stated that Tesla is an AI company (for example, “Tesla is an AI/robotics company that appears to many to be a car company[,]” and “Tesla is the biggest AI project on earth.”). Since 2019, Musk has touted AI as the key to the success of Tesla, particularly autonomous vehicles, referring to the AI-powered Tesla Robotaxis as a “historically mega-revolutionary product.” And the market seems to agree, assigning a far higher value to Tesla than a typical auto manufacturer.
Allegations in the Lawsuit
According to the lawsuit, Musk breached his fiduciary duties of loyalty and care to Tesla and unjustly enriched himself by forming a competing AI company, xAI. The complaint claims that Musk compounded his breaches by:
- Diverting talent from Tesla (the xAI website previously disclosed that it had hired at least eleven engineers away from Tesla)
- Directing $500 million of scarce Nvidia GPUs used in AI computations from Tesla to xAI and X
- Using Tesla data to train xAI’s AI models without compensating Tesla (xAI’s fundraising pitchbook claimed that the company would train its AI models on Tesla’s driving data and social media data provided by X).
Allegations Against the Tesla Board
The plaintiffs allege that the board members (including Musk’s brother Kimbal) have received hundreds of millions of dollars of director compensation from Tesla and are so beholden to Musk that they did nothing to stop him, breaching their duties of care and loyalty, adding that Musk dominates the company and the board to the extent that directors even feel pressured to take illicit drugs with him.
Reasons Behind xAI’s Formation
The plaintiffs also seek to explain why Musk started xAI. In 2021 and 2022, Musk sold Tesla shares to cover his taxes, dropping below 20% ownership of the company. In January 2024, he posted on X that:
“I am uncomfortable growing Tesla to be a leader in AI & robotics without having ~25% voting control. … Unless that is the case, I would prefer to build products outside of Tesla.”
The plaintiffs allege that without the 25% ownership he insisted on, Musk elected to take the opportunities for himself.
Legal Proceedings and Demands
The plaintiffs are seeking damages and the transfer of Musk’s equity stake in xAI to Tesla. The case was filed in the same Delaware court that invalidated Musk’s $56 billion 2018 compensation package. Defendants have not yet filed an answer to plaintiffs’ complaint.
To discuss further, please contact Andrew Wilber (AJW@kjk.com; 216.736.7298) or Christopher Hubbert (CJH@kjk.com; 216.736.7215) or another member of our Corporate & Securities practice group.