San Francisco, California – Tesla shareholders are taking legal action against CEO Elon Musk and members of the company’s board of directors. The lawsuit alleges that Musk’s decision to establish xAI, a competing AI company, has led to the diversion of resources and talent from Tesla to the new startup.
The legal challenge represents a direct affront to Musk’s initiative to launch xAI, a move that occurred amidst his ultimatum to develop AI technologies outside of Tesla unless granted increased voting control over the company. The lawsuit was filed just prior to Tesla’s annual meeting, where shareholders are expected to vote on the re-approval of a $56 billion compensation package previously invalidated by a court ruling earlier in the year.
Tesla’s unique position in the market, as both an electric vehicle manufacturer and an AI company according to Musk, has resulted in its stock valuation comparable to that of major tech enterprises. The legal complaint, filed on behalf of Tesla by the Cleveland Bakers and Teamsters Pension Fund, asserts that Musk and the board breached fiduciary responsibilities to shareholders by allowing the establishment of a competing entity like xAI.
The plaintiffs claim that Musk’s involvement in xAI contravenes Tesla’s code of ethics and have called for the court to compel Musk to relinquish his stake in xAI and return it to Tesla. The lawsuit draws parallels between Musk’s actions and a hypothetical scenario involving a CEO of a soft-drink company founding a rival entity and diverting resources to it.
Since its inception in 2023, xAI has attracted substantial funding and now competes with industry giants like OpenAI, Microsoft, and Alphabet. The lawsuit points out that Tesla has redirected employees and resources to xAI, with reports indicating that at least 11 staff members have transitioned from Tesla to the new venture. Furthermore, allegations have surfaced regarding Musk diverting AI processors from Tesla to other projects, including X, his social media enterprise.
The lawsuit underscores the plaintiffs’ perception of Musk’s actions as detrimental to Tesla’s interests, emphasizing the board’s purported failure to safeguard the company and its shareholders from potential harm. Recently, another group of Tesla shareholders filed a separate lawsuit against Musk, alleging that he profited unlawfully by selling the company’s stock based on insider information in previous years.