Tesla shareholders have filed a lawsuit against CEO Elon Musk and members of the company’s board of directors. The lawsuit stems from Musk’s decision to start xAI, a competing AI company, and allegedly divert talent and resources from Tesla to this new venture. This legal action comes in the wake of Musk’s threat to develop AI outside of Tesla unless he gains more voting control over the company.
The lawsuit was filed just hours before Tesla’s annual meeting, during which shareholders were set to vote on re-ratifying a $56 billion compensation package that had previously been rejected by a judge. The timing of this complaint highlights the growing discontent among shareholders regarding Musk’s actions and decisions.
Musk has consistently argued that Tesla is not just an electric vehicle manufacturer but an AI company as well. This claim has contributed to Tesla’s high stock valuation, surpassing that of the top four automakers combined. However, this lawsuit challenges Musk’s assertion and accuses him and the board of breaching fiduciary duties to shareholders and unjustly enriching himself by launching a competing company.
The plaintiffs argue that Musk’s involvement with xAI violates Tesla’s code of business ethics, and they are seeking legal action to force him to relinquish his stake in xAI and return it to Tesla. They describe Musk’s actions as preposterous, comparing it to a hypothetical scenario in which the CEO of Coca-Cola starts a rival soft-drink company and diverts resources from Coca-Cola to the new venture.
xAI was launched by Musk in 2023 and has already secured $6 billion in funding, positioning itself as a competitor to established players like OpenAI, Microsoft, and Alphabet. The plaintiffs point to Tesla’s subsequent diversion of talent and resources to xAI, with at least 11 employees leaving Tesla to join the new startup. They also highlight reports suggesting that Tesla has provided xAI with access to its AI-related data.
Furthermore, the lawsuit references CNBC’s reporting, which claims that Musk redirected a significant shipment of AI processors from Nvidia, originally intended for Tesla, to his social media company X. Musk explained that Tesla’s data center in Texas was still under construction and lacked storage space. However, the plaintiffs argue that this diversion of resources demonstrates Musk’s disloyalty to Tesla and its shareholders.
This lawsuit adds to the existing legal challenges faced by Musk, as other Tesla shareholders recently filed a separate suit alleging that he profited from insider trading by selling the company’s stock based on privileged information.
These legal actions highlight the increasing scrutiny and concern over Musk’s decisions and their impact on Tesla and its shareholders. The outcome of these lawsuits will have significant implications for Musk’s control over Tesla and the company’s future direction. As the legal proceedings unfold, it remains to be seen how they will ultimately shape the landscape of the electric vehicle and AI industries.
