Tesla disclosed in its Q4 2025 earnings report that it has invested $2 billion in xAI, Elon Musk’s private AI company. The investment comes while Tesla shareholders are actively suing Musk for breach of fiduciary duty over his founding of xAI in the first place.
You can’t make this up.
The investment
Buried in Tesla’s Q4 shareholder update, the company revealed:
On January 16, 2026, Tesla entered into an agreement to invest approximately $2 billion to acquire shares of Series E Preferred Stock of xAI as part of their recent publicly-disclosed financing round. Tesla’s investment was made on market terms consistent with those previously agreed to by other investors in the financing round.
xAI announced earlier this month that it raised $20 billion in its Series E round, valuing the company at approximately $230 billion. Tesla’s $2 billion represents 10% of that round, but less than 1% of the company.
Other investors in the round included Nvidia, Cisco, Qatar’s sovereign wealth fund, and Fidelity.
Tesla justified the investment by referencing “Master Plan Part IV,” claiming the company is “building products and services that bring AI into the physical world” while xAI develops “leading digital AI products and services, such as its large language model (Grok).”
The automaker added:
In that context, and as part of Tesla’s broader strategy under Master Plan Part IV, Tesla and xAI also entered into a framework agreement in connection with the investment. Among other things, the framework agreement builds upon the existing relationship between Tesla and xAI by providing a framework for evaluating potential AI collaborations between the companies. Together, the investment and the related framework agreement are intended to enhance Tesla’s ability to develop and deploy AI products and services into the physical world at scale. This investment is subject to customary regulatory conditions with the expectation to close in Q1’2026.
CEO Elon Musk had previously claimed that Tesla didn’t need xAI to build AI products.
The lawsuit problem
Here’s where it gets uncomfortable for Tesla’s board.
Tesla shareholders filed a lawsuit against Musk in June 2024 alleging breach of fiduciary duty over his founding of xAI. The core argument? Musk diverted AI resources, talent, and opportunities that belonged to Tesla to his private company instead.
The lawsuit points to a critical fact: when Musk left OpenAI’s board in 2018, he cited a “conflict of interest” with Tesla’s own AI efforts. He then built Tesla’s AI team, including the development of the Dojo supercomputer and FSD neural networks.
But after selling billions in Tesla shares to acquire Twitter and seeing his ownership stake fall below 20%, Musk started xAI, taking the AI ambitions he previously said belonged at Tesla and putting them in a company he fully controls.
The shareholders are asking the court to force Musk to transfer his xAI ownership to Tesla.
Now, instead of waiting for the court to rule, Tesla is using shareholder money to invest in the very company at the center of the lawsuit.
The conflict isn’t theoretical. We’ve documented multiple cases of Tesla AI engineers being poached by xAI. These are people Tesla shareholders paid to train and develop, now working for Musk’s private company.
Furthermore, xAI is reportedly burning through $1 billion a month trying to compete with frontier models from OpenAI, Google, Anthropic, and now Chinese models, which are way cheaper.
Electrek’s Take
Let’s be very clear about what happened here.
Elon Musk:
- Built an AI team at Tesla using Tesla shareholder money
- Claimed a “conflict of interest” with Tesla as his reason for leaving OpenAI
- Started xAI after his Tesla ownership stake fell, over his own dumb decision to over pay for Twitter, taking the AI effort to a company he controls outright
- Is now having Tesla, the company he’s accused of stealing from, invest $2 billion in xAI
The circular logic is breathtaking. Tesla shareholders are suing Musk because he took AI resources from Tesla to xAI. The resolution? Have Tesla pay $2 billion to xAI.
This is the equivalent of someone being accused of stealing your car, and then you paying them for a ride.
Tesla’s statement that the investment was made “on market terms consistent with those previously agreed to by other investors” is meant to reassure shareholders this wasn’t a sweetheart deal. But the bigger question isn’t whether Tesla got a fair price, it’s whether Tesla should be investing in Musk’s private ventures at all while he’s being sued for conflicts of interest.
A truly independent board would have waited for the lawsuit to resolve before committing $2 billion in shareholder capital to the company at the center of the litigation. Instead, Tesla’s board approved the investment while the case is ongoing.
Strange times.
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