Tesla shareholders are suing CEO Elon Musk and the automaker's board members, accusing Musk of deciding to start xAI, an artificial intelligence company seen as a competitor, and transferring Tesla's talent and resources to this new venture. This lawsuit represents one of the most direct challenges to Musk's decision to launch xAI.
The lawsuit was filed just hours before Tesla's annual shareholder meeting. Shareholders may revisit the $56 billion compensation plan, which was dismissed by a judge earlier this year, during the meeting. Musk has consistently claimed that Tesla is not just an electric vehicle manufacturer but also an AI company, which is one reason for Tesla's high stock price and market capitalization.
Represented by the Cleveland-based Baker and Teamsters Pension Fund, Daniel Hausen, and Michael Giampietro, Tesla shareholders have filed a new lawsuit in the Delaware Chancery Court, accusing Musk and Tesla's board members of breaching their fiduciary duties to shareholders by allowing Musk to profit improperly through the creation of a competing company.
The plaintiffs also allege that Musk's creation and leadership of xAI violated Tesla's business ethics code, which the board allowed him to continue violating unimpeded. They are demanding the court force Musk to surrender his shares in xAI and transfer them to Tesla.
The lawsuit states: "It is absurd for the CEO of a large publicly traded company in Delaware to, with the board's explicit approval, start a competing company and then transfer talent and resources from his company to this startup." The complaint compares Musk's actions to those of a hypothetical scenario where the CEO of Coca-Cola starts a rival soft drink company and ships ingredients to it.
Musk launched xAI in 2023 and attracted $6 billion in funding for the startup, aiming to compete with rivals like OpenAI, Microsoft, and Alphabet. The plaintiffs note that shortly thereafter, Tesla began transferring talent and resources to xAI. At least 11 employees moved directly from Tesla to xAI, and it is noted that Tesla has been providing xAI with access to AI-related data.
The plaintiffs also point out that Musk transferred a significant number of Nvidia AI processors originally reserved for Tesla to his social media company, X (formerly Twitter). A few weeks ago, Musk posted on X that Tesla would spend $10 billion this year on integrated training and inference AI, and he also stated that expensive Nvidia chips are needed to help Tesla become a "leader in AI and robotics." Musk admitted to transferring the chips to X and claimed that Tesla's new data center in Texas is still under construction and has no space to store these chips.
The plaintiffs write: "The board allowed Musk—Tesla's CEO and largest shareholder—to create and lead another AI company; plunder Tesla's resources and transfer them to xAI; and create billions of dollars in AI-related value in companies outside of Tesla. Tesla's board has long been subservient to Musk, and even in the face of his blatant disloyalty, the board did not even attempt to fulfill its steadfast fiduciary duty to protect Tesla and its shareholders."
Earlier this week, other Tesla shareholders filed a separate lawsuit against Musk, alleging that he used insider information to make billions of dollars by selling the automaker's stock in 2021 and 2022.