Tesla to invest $2B in Elon Musk’s xAI

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

Tesla announced 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 X. previously announced Investors in xAI include Valor Equity Partners, Fidelity, Qatar Investment Authority, as well as Nvidia and Cisco as ‘strategic investors’.

This is a truly circular deal, which Tesla shareholders voted against last year. In November, a non-binding measure asked shareholders to allow Tesla’s board to approve an investment in xAI. About 1.06 billion votes were in favor and 916.3 million against Bloomberg’s reporting at the time. Although that seems like an approval, the number of abstentions – which counts as votes against in Tesla’s articles of association – meant that the measure was rejected.

Tesla went ahead anyway, making an argument in support of the investment in its shareholder letter and during its earnings call. Tesla’s justification seems to be related to xAI’s alignment with its most recent master plan – and how these companies are about to get a lot closer.

“As outlined in Master Plan Part IV, Tesla is building products and services that bring AI to the physical world. Meanwhile, xAI is developing leading digital AI products and services, such as its large language model (Grok),” the shareholder letter reads. “In that context, and as part of Tesla’s broader strategy under Master Plan Part IV, Tesla and xAI have also entered into a framework agreement in connection with the investment.”

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

Musk noted that there are many tasks that Tesla can perform internally. “But if there are things that xAI can help accelerate our progress, why wouldn’t we do that?” he asked. “And that is why we have gone ahead 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 its Optimus robot, semi-trucks and other autonomous capabilities. The company broadly beat Wall Street estimates on profit and revenue, but profits fell 46% last year.

“Together, the investment and associated framework agreement are intended to advance Tesla’s ability to develop and deploy AI products and services at scale in the physical world,” Tesla said in the shareholder letter.

The investment is expected to be completed 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 marks the first big steps for Tesla as we increase vehicle autonomy and start producing Optimus robots at scale – we are making very, very large investments,” Musk said on the call. “So this is going to be a very big investment here; that’s intentional because we’re making big investments for an epic future.”