Tesla Investors Sue Elon Musk

Tesla investors accused Tesla boss Elon Musk of brazen disloyalty with his xAI startup that created billions in AI-related value at a company other than Tesla.

On Thursday, Tesla shareholders filed a lawsuit against Tesla’s board and CEO Elon Musk, asserting that Musk’s xAI venture is a “competing company” that is appropriating the company’s artificial intelligence talent and resources.

It was announced on the same day that shareholders voted to reinstate Musk’s $44.9 billion compensation package, invalidated by a Delaware judge in January.

The stockholder complaint was filed in Delaware’s Chancery Court on June 13 by the Cleveland Bakers and Teamsters Pension Fund, Daniel Hazen, and Michael Giampietro on behalf of Tesla.

They allege that Musk, while “touting xAI’s access to Tesla’s AI-related data,” diverted “scarce talent and resources from Tesla to xAI” and raised billions for the startup.

The manufacturer of automobiles has consistently promoted the AI-powered self-driving capabilities of its vehicles and driver assistance features.

According to the trio, Musk’s xAI recruited “several key AI-focused employees” from Tesla, including the “most significant” hire of Tesla’s computer vision team lead, Ethan Knight, in March 2024.

Musk “began personally directing Nvidia” to send graphics processing units (GPUs) — the backbone compute power of AI models — destined for Tesla to xAI and X, according to a lawsuit that cited an early June CNBC report.

At the time, Musk stated on X that Tesla had “no place to send” the GPUs, which would have “sat in a warehouse.”

The shareholders stated that Musk’s fellow directors on the Tesla board of directors have not taken any action during this period.

They further stated that the board “completely failed even to attempt” to fulfill its fiduciary obligation to Tesla and its stockholders “in the face of Musk’s brazen disloyalty,” which enabled him to “create billions in AI-related value at a company other than Tesla.”

The lawsuit requests the restitution of “value diverted from Tesla.”

Tesla Inc (TSLA) shares have declined by 26.5% this year. According to Google Finance, the stock increased by nearly 3% to $182.47 on June 13, with a slight 0.13% increase in after-hours trading.

xAI started over Musk’s lacking Tesla voting control, say investors

The triumvirate cited Musk’s January X post, in which he expressed discomfort with expanding Tesla’s AI and robotics initiatives without approximately 25% voting control.

Musk further stated, “I would prefer to develop products outside of Tesla unless that is the case.”

The shareholders asserted that Musk’s statement implied that he “consciously established xAI to develop AI-related products outside of Tesla that he had previously intended to develop within Tesla.”

Musk held approximately 21% of the company at the time of the post. However, in January, Delaware’s Chancery Court revoked Musk’s 2018 compensation plan, decreasing his ownership to 13%, according to the lawsuit.

“They claimed that Musk responded by increasing operations at xAI” after his voting power was diminished.

The shareholders’ vote on June 13 to reinstate the 2018 pay pack is still expected to result in a months-long standstill in Delaware’s Chancery and Supreme Courts as Tesla attempts to overturn the previous rejection.

Tesla did not promptly request for comment.