Tesla Shareholders File Lawsuit Against Musk for Launching Rival AI Company

Tesla shareholders are taking legal action against CEO Elon Musk and the automaker’s board of directors over Musk's recent decision to launch xAI, which they argue is a competing AI venture. They claim this move has led to the diversion of talent and resources away from Tesla to support the startup.

This lawsuit represents a bold challenge to Musk's establishment of xAI and follows his threat to develop AI independently unless he gains greater voting control over Tesla.

Filed just hours before Tesla's annual meeting—where shareholders are expected to vote on re-ratifying the $56 billion compensation package previously overturned by a judge—this complaint adds to the growing scrutiny of Musk's leadership decisions.

Musk has often asserted that Tesla's true value extends beyond electric vehicles; he emphasizes its identity as an AI company. This perspective has contributed to Tesla's stock being valued comparably to tech companies and surpassing the combined worth of the four largest automakers.

The lawsuit was initiated on Thursday by the Cleveland Bakers and Teamsters Pension Fund in Delaware Chancery Court, with Daniel Hazen and Michael Giampietro representing Tesla. They allege that Musk and Tesla's board have breached their fiduciary duties to shareholders and unjustly enriched Musk by facilitating the establishment of a competing entity.

The plaintiffs contend that Musk has violated Tesla’s business ethics code by initiating and leading xAI, while the board has failed to act against these violations. They seek to have Musk relinquish his stake in xAI, transferring it to Tesla.

The complaint states, “The notion that the CEO of a major, publicly traded Delaware corporation could— with the evident approval of his board—start a competing company and then divert talent and resources from his corporation to this startup is preposterous.” It draws a striking analogy to the CEO of Coca-Cola starting a rival soft-drink business and supplying it with key resources.

Musk launched xAI in 2023 and secured $6 billion in funding aimed at competing against established companies like OpenAI, Microsoft, and Alphabet. The plaintiffs highlight that shortly thereafter, Tesla began reallocating personnel and resources to xAI, with reports indicating that at least 11 employees transitioned directly from Tesla to the startup. Furthermore, Tesla has allegedly been sharing AI-related data with xAI.

The lawsuit also references CNBC reporting that Musk diverted a considerable shipment of NVIDIA AI processors—originally reserved for Tesla—to his social media platform, X (formerly Twitter). A few weeks ago, Musk stated on X that Tesla would invest $10 billion in AI training and inference this year, underlining the need for NVIDIA’s costly chips to bolster Tesla’s ambitions in AI and robotics.

“The Board has allowed Musk—Tesla’s CEO and largest shareholder—to establish and lead another AI company, siphoning resources from Tesla to xAI and creating significant AI-related value elsewhere,” the plaintiffs argue. They criticize the board for its history of acquiescence toward Musk, claiming it has failed to uphold its fiduciary duty to protect the interests of Tesla and its shareholders against Musk’s blatant disloyalty.

In a related context, other Tesla shareholders recently filed a separate lawsuit against Musk, alleging that he profited billions by selling Tesla shares in 2021 and 2022 based on insider information.