Tesla invests $2 billion in Elon Musk’s XAI

Three weeks ago, Elon Musk’s artificial intelligence company, xAI, revealed that it had raised $20 billion in a Series E funding round. Now we know that Tesla is among its investors.

Tesla revealed in a letter to shareholders on Wednesday that it has invested $2 billion in xAI, the startup behind the Grok chatbot that also owns Musk’s social media company

This is a truly circular deal and Tesla shareholders voted against it last year. In November, shareholders were asked, in a non-binding action, to allow Tesla’s board of directors to authorize investment in XAI. About 1.06 billion votes were in favor, and 916.3 million were against, according to Bloomberg reports at the time. While that may seem like approval, the number of abstentions — which are considered votes against Tesla’s bylaws — means the measure is rejected.

Tesla went ahead anyway and made an argument, both in its shareholder letter and during the earnings call, to support the investment. Tesla’s justification appears to be tied to XAI’s alignment with its latest master plan — and how these companies are about to get very close.

“As set forth in the Part IV Master Plan, Tesla is building products and services that bring AI into the physical world. At the same time, xAI is developing leading digital AI products and services, such as the Grand Language Model (Grok),” the shareholder letter said. “In this context, and as part of Tesla’s broader strategy under the Part IV Master Plan, Tesla and xAI have also entered into a framework agreement in relation to the investment.”

Tesla said the agreement builds on the existing relationship with xAI by “providing a framework for evaluating potential AI collaborations between the companies.” Tesla already powers its Megapack batteries to power xAI data centers, Musk confirmed last year, and the company has included xAI chatbot Grok in some of its vehicles. Bloomberg also reported that xAI told investors that it plans to build artificial intelligence for humanoid robots like Tesla’s Optimus.

Musk pointed out that there are many tasks that Tesla can perform internally. “But if there are things where xAI can help accelerate our progress, why wouldn’t we?” he asked. “That is why we are moving forward with such an investment. Because this is part of the strategic initiative.”

In its letter to shareholders, Tesla highlighted these and other developments in physical AI and robotics, including plans to develop the Optimus robot, semi-trucks, and other autonomous capabilities. The company widely beat Wall Street estimates on earnings and revenue, but profits fell 46% last year.

“Together, the investment and related framework agreement aim to enhance Tesla’s ability to develop and deploy AI products and services in the physical world at scale,” Tesla said in its shareholder letter.

The investment is expected to close in the first quarter.

Musk and Tesla CFO Vaibhav Taneja indicated during the company’s earnings call that it expects other capital expenditures that support its mission.

“This year for Tesla is the first major steps as we work to increase vehicle autonomy and start mass production of Optimus robots — we’re making very significant investments,” Musk said on the call. “So this is going to be a very significant capital expenditure here; that’s intentional, because we’re making significant investments for an epic future.”