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Tesla shareholders sue Musk over xAI

Tesla shareholders sue Musk over xAI

Shareholders Sue

Tesla shareholders have filed a lawsuit against Elon Musk and the company’s board. They accuse them of diverting talent and resources from Tesla to Musk’s rival artificial intelligence company, xAI. The plaintiffs allege that Musk and the board breached their fiduciary duty to Tesla by launching xAI in 2023.

They claim that for years, Musk has sought to position Tesla as a robotics and AI powerhouse, not just a car company. This helped propel Tesla’s stock price. The lawsuit states that Musk was “diverting scarce talent and resources from Tesla to xAI.” It also says he raised billions of dollars for xAI while touting its access to Tesla’s AI-related data.

Last week, xAI raised $6 billion in its initial funding round. The company said this will be used to bring its first products to market. So far, xAI has launched Grok, a version of OpenAI’s ChatGPT.

The plaintiffs also cite the diversion of thousands of Nvidia-made AI chips destined for Tesla. In a post on X, Musk explained that Tesla lacked the capacity to accept the Nvidia GPUs because the company’s factory in Austin, Texas, is incomplete.

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Shareholders sue over xAI diversion

He estimated that Tesla would spend $3-4 billion on AI chips from Nvidia in 2024. There are also claims that Musk suggested he needs a larger stake in Tesla to feel comfortable growing it into an AI and robotics leader. The plaintiffs accuse Tesla’s board of allowing Musk to “plunder resources from Tesla and divert them to xAI.” They say this created substantial AI-related value at a company other than Tesla.

The lawsuit was filed in Delaware, where the company is still incorporated. It came only hours before Tesla shareholders are set to vote on a proposal to reincorporate the company in Texas. This follows a Delaware court judge voiding Musk’s enormous pay package.

The plaintiffs include institutional investors as well as two individual shareholders, Daniel Hazen and Michael Giampietro. They are suing on behalf of Tesla itself. This lawsuit adds to the ongoing scrutiny of Musk’s activities and his management of Tesla.

It comes as another institutional investor has claimed that Musk earned billions of dollars selling Tesla stock using insider information. The legal action emerges as shareholders prepare for the crucial vote on the company’s future incorporation plans.

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