In a move that completely undermines the “Tesla is an AI company” narrative, Elon Musk’s private startup, xAI, has reportedly told investors that it plans to build the AI to power Tesla’s Optimus robot.
This new development comes from a Bloomberg report detailing xAI’s widening losses and massive cash burn. According to the report, xAI executives explicitly told investors that their goal is to “develop self-sufficient AI to power robots like Tesla’s Optimus.”
This is a massive shift in the narrative and potentially the smoking gun in ongoing shareholder lawsuits regarding Musk’s breach of fiduciary duty.
The “Tesla is an AI Robotics Company” Lie?
For years, and especially since Tesla’s EV sales have been declining, Elon Musk has sold Tesla (TSLA) investors on the idea that the automaker is not just a car company, but the world’s leading real-world AI and robotics company. The high valuation of Tesla stock is largely pegged to this promise, specifically the future value of Full Self-Driving (FSD) and the Optimus humanoid robot.
Musk has famously stated that Optimus would be “the biggest product ever created by humanity”, implying that value would be captured by Tesla.
But now, we are learning that the “brain” of Optimus, the critical software that makes it valuable, might not be a Tesla asset at all. Instead, it seems it will be a product of xAI, a private company where Musk has a significantly larger controlling interest than he does in Tesla.
If Tesla is simply building the hardware shell while xAI provides the intelligence, Tesla becomes little more than a contract robot manufacturer for Musk’s private venture, or a massive customer licensing his private company’s IP.
Impact on Shareholder Lawsuits
This report could be devastating for Musk’s defense in current lawsuits accusing him of breaching his fiduciary duties at Tesla.
We previously reported on how Musk threatened to build AI products outside of Tesla unless he was given 25% voting control, a ransom demand that many shareholders felt was met when his massive pay package was reinstated and a new massive pay package worth up to $1 trillion. Yet, despite getting what he wanted, he appears to be moving the AI value outside of Tesla anyway.
This follows a pattern we have been tracking at Electrek for a few years:
- Talent Drain: We reported last year how Musk was siphoning top AI talent from Tesla to xAI, effectively hollowing out Tesla’s AI team to staff his startup. Tesla is also directly competing against xAI to recruit new AI talent
- Resource Diversion: We also covered the controversy when Musk diverted thousands of Nvidia H100 AI chips that were ordered for Tesla, sending them to xAI instead.
- Competition: Musk argued that xAI is not directly competing with Tesla at a product level, but now the narrative is changing.
At the time, Musk claimed xAI was necessary because it was focused on “AGI” while Tesla was focused on “real-world AI.” He specifically said that Tesla, with its “real-world AI” developed through its autonomous driving effort, would be the one building the Optimus robot’s brain.
Musk said:
Tesla has learned a lot from discussions with engineers at xAI that have helped accelerate achieving unsupervised FSD, but there is no need to license anything from xAI.
This new report obliterates that distinction. If xAI is building the brain for Optimus, they are directly taking over Tesla’s core “real-world AI” mission.
And if “AI to power robots like Tesla’s Optimus” means other humanoid robots, then it’s a direct competitor to Tesla.
This is exactly why some Tesla shareholders sued Musk and Tesla’s board for breach of fiduciary duties after the founding of xAI. They argue that Musk had no right to start this effort outside of Tesla and to do so directly with the company. They seek for Tesla to own Musk’s stake in xAI.
Electrek’s Take
This is exactly what we warned about. The conflict of interest here is so glaring it’s blinding.
Elon Musk is effectively running a shell game with shareholder capital. He raised money for Tesla on the promise of AI dominance, used Tesla’s resources and reputation to build the infrastructure, and is now seemingly transferring the most valuable intellectual property, the AI itself, to a private company he controls.
If xAI charges Tesla for the “privilege” of using the Optimus AI model (likely via a licensing fee or revenue share, similar to the FSD scheme we heard rumors about), it is a direct transfer of wealth from Tesla’s public shareholders to Elon Musk’s privately owned and controlled company, which happens to be burning through ~$1 billion a month.
Tesla investors need to ask themselves: If xAI owns the intelligence behind the robot, what exactly is Tesla owning? A collection of actuators and metal? That’s not a multi-trillion dollar future; that’s a hardware commoditization trap.
It also provides plaintiffs in breach of fiduciary duty lawsuits with incredible ammunition. At this point, it’s impossible to make the argument that Tesla is not directly affected by xAI.
On the other hand, Elon is also making the prospect of Tesla owning xAI increasingly less attractive as the company is becoming mostly known for its generative AI, creating unauthorized sexualized images of people, including minors.
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