Tesla Investors Sue Elon Musk Over Alleged Resource Diversion to xAI

Tesla Investors Sue Elon Musk Over Alleged Resource Diversion to xAI

By: Eva Baxter

Tesla shareholders have filed a lawsuit against CEO Elon Musk and other top executives, accusing them of misappropriating the company's resources for the benefit of xAI. The lawsuit, filed on June 13, claims that xAI, an artificial intelligence firm founded by Musk in 2023, has siphoned talent and resources from Tesla to bolster its own operations.

According to the plaintiffs, xAI has attracted several key Tesla employees and diverted approximately $500 million worth of GPUs essential for AI development. They also allege that xAI has utilized Tesla's proprietary data without providing any form of compensation. This use of Tesla's assets, the shareholders argue, violates Musk's fiduciary duties to the automobile giant.

Adding fuel to their claims is a tweet from Musk where he indicated his intention to steer AI initiatives away from Tesla unless he was granted 25% voting control in the company. The legal complaint states, "Musk publicly threatened that he would divert corporate opportunities away from Tesla unless Tesla gave him substantial additional equity." The plaintiffs argue that this has significantly devalued Tesla while enriching xAI by hundreds of billions of dollars.

Musk has often emphasized Tesla's capabilities in AI, describing the company not merely as an automaker but as an "AI/robotics company that appears to many to be a car company." However, the shareholders allege that this portrayal has been used to downplay the negative impact xAI’s growth has had on Tesla.

Potential Legal Remedies

The plaintiffs are seeking several remedies, accusing Musk and the Tesla board members of breaching their fiduciary duties. They contend that the current board cannot impartially oversee Musk’s actions. Among their demands are damages to compensate for the misappropriated staffing and resources, the disgorgement of Musk's equity stake in Tesla, and establishing a constructive trust over Musk’s interests in xAI.

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