Tesla shareholders are suing CEO Elon Musk and members of the company's board of directors over Musk's decision to found a competing AI company, xAI, and divert talent and resources from Tesla to the new startup.
The lawsuit is one of the most direct challenges to Musk's decision to found xAI, and comes on the heels of his threat to develop the AI outside Tesla unless he is given more voting power in the company.
The lawsuit also was filed just hours before Tesla is scheduled to hold its annual shareholder meeting, where shareholders are likely to vote to reapprove a $56 billion compensation package that a judge rejected earlier this year.
Musk has long argued that Tesla's true value is that it's actually an AI company, not just an electric-car maker — one reason why Tesla's stock price is as high as tech companies and the company is worth more than the top four automakers combined.
The new complaint was filed Thursday on behalf of Tesla by the Cleveland Bakers & Teamsters Pension Fund, Delaware Chancery Court Judge Daniel Hazen and Michael Giampietro. The complaint alleges that Musk and Tesla's directors breached their fiduciary duties to shareholders and wrongfully enriched Musk by allowing the CEO to start a competing company.
The lawsuit also alleges that Musk violated Tesla's corporate ethics policy by founding and leading xAI, and that the board of directors allowed Musk to continue violating that policy unimpeded. The lawsuit asks the court to compel Musk to divest and turn over his xAI shares to Tesla.
“The notion that the CEO of a large publicly traded Delaware company would start a competing company with the apparent approval of its board of directors and then divert the talent and resources of his company to that start-up is outrageous,” the complaint reads, which compares Musk's actions to a hypothetical situation in which the CEO of Coca-Cola started a competing soft drink company and sent it raw materials.
Musk will launch xAI in 2023 and recently raised $6 billion for the startup, which aims to compete with rivals such as OpenAI, Microsoft and Alphabet.
The plaintiffs note that Tesla soon began diverting talent and resources from Tesla to xAI, noting that at least 11 employees had joined xAI directly from Tesla and that Tesla had reportedly provided xAI with access to its AI-related data, according to the complaint.
The plaintiffs also point to a CNBC report that Musk diverted a significant shipment of Nvidia's AI processors that had been reserved for Tesla to his own social media company, X (formerly Twitter). Musk posted on X a few weeks ago that Tesla would spend $10 billion this year on “AI combined with training and inference,” and that Tesla needed Nvidia's expensive chips to become a “leader in AI and robotics.”
Musk acknowledged that Tesla announced it would repurpose the chips for the X because its new data center in Texas is still under construction and it doesn't have the space to store the chips.
“The board allowed Musk, Tesla's CEO and largest shareholder, to found and lead another AI company, plunder resources from Tesla and divert them to xAI, and create billions of dollars of AI-related value outside of Tesla,” the plaintiffs write. “Consistent with its long history of deferential treatment to Musk, the Tesla board utterly failed to even attempt to discharge its unwavering fiduciary responsibility to protect the interests of Tesla and its shareholders in the face of Musk's brazen dishonesty.”
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 shares in the company in 2021 and 2022.