Elon Musk proposes $5 bn xAI Investment to Tesla board

Elon Musk, CEO of Tesla, has announced plans to discuss a $5 billion investment in his artificial intelligence startup, xAI, with the Tesla board. The move, revealed on Thursday, has sparked discussions about potential conflicts of interest given Musk’s dual roles.

Musk, the world’s richest person, founded xAI last year to rival Microsoft-backed OpenAI. This initiative has raised eyebrows, with some expressing concern over the possibility of diverting Tesla resources to support the AI venture.

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Despite the concerns, Musk’s followers seem supportive. A social media poll launched by Musk on X (formerly Twitter) saw more than two-thirds of nearly one million respondents favouring the investment. However, the number of respondents who are Tesla investors remains unclear.

“Looks like the public is in favour. Will discuss with Tesla board,” Musk stated in a post on X.

This announcement came on the heels of Tesla’s second-quarter earnings report, which revealed that automotive gross margin and profit had fallen short of Wall Street estimates due to price cuts and sales incentives. During the earnings call, Musk highlighted the potential benefits of xAI, suggesting it could advance Tesla’s full self-driving capabilities and support the new Tesla data center. He also hinted at integrating xAI’s chatbot, Grok, with Tesla’s software.

The AI industry, despite attracting massive investments, is still grappling with establishing profitable business models. Brent Goldfarb, a business school professor at the University of Maryland, voiced skepticism about the proposed investment. “It’s hard to make a claim that this is in the best interest of Tesla shareholders,” Goldfarb commented, likening the situation to a transfer of Tesla wealth. “In AI, nobody is quite sure where the money is going to be made and who is going to pay for it. AI right now has all the signs of a bubble.”

Musk’s history with AI startups adds another layer to the narrative. In 2018, he departed from OpenAI, an organization he co-founded, due to potential conflicts with Tesla’s AI development for self-driving vehicles.