Tesla to invest $2 billion in Elon Musk’s xAI amid closer AI collaboration

Tesla has disclosed that it will invest $2 billion in xAI, the artificial intelligence company founded by Elon Musk, following the startup’s announcement three weeks ago that it had raised $20 billion in a Series E funding round, according to reports.

As reported by TechCrunch, Tesla informed shareholders in a letter on Wednesday that it was among the investors in xAI, which develops the Grok chatbot and also owns Musk’s social media platform X. Previously disclosed investors in xAI include Valor Equity Partners, Fidelity, the Qatar Investment Authority, as well as Nvidia and Cisco, which were described as strategic investors.

The investment comes despite opposition from Tesla shareholders last year. In November, shareholders voted on a nonbinding proposal to allow Tesla’s board to authorise an investment in xAI. Around 1.06 billion votes were cast in favour and 916.3 million against, according to Bloomberg’s reporting at the time. However, under Tesla’s bylaws, abstentions are counted as votes against, meaning the proposal was ultimately rejected.

Tesla proceeded with the investment regardless and set out its rationale in the shareholder letter and during its earnings call. The company stated that the decision was aligned with its latest master plan and its ambition to integrate artificial intelligence into physical products and services.

Tesla informed shareholders that under Master Plan Part IV it is building products that bring AI into the physical world, while xAI is developing digital AI products and services such as its large language model, Grok. It added that, as part of its broader strategy, Tesla and xAI had entered into a framework agreement linked to the investment.

According to Tesla, the agreement builds on an existing relationship by establishing a structure to evaluate potential AI collaborations between the two companies. Tesla already supplies Megapack batteries to power xAI data centres, a detail Musk confirmed last year, and the Grok chatbot has been integrated into some Tesla vehicles. Bloomberg also reported that xAI has told investors it plans to develop AI systems for humanoid robots, including machines similar to Tesla’s Optimus.

Musk stated during the earnings call that while Tesla can handle many tasks internally, xAI could help accelerate progress in certain areas, which he described as the strategic reason for proceeding with the investment.

In its shareholder letter, Tesla also highlighted wider developments in physical AI and robotics, including plans related to its Optimus robot, semitrucks and autonomous capabilities. The company reported earnings and revenue that broadly beat Wall Street expectations, although profit fell 46 per cent last year.

Tesla stated that the investment and the related framework agreement are intended to strengthen its ability to develop and deploy AI products and services in the physical world at scale. The company expects the investment to close in the first quarter.

During the earnings call, Musk and Tesla chief financial officer Vaibhav Taneja also signalled that further capital expenditure was expected to support the company’s long-term goals, with Musk stating that Tesla was making significant investments this year as it increases vehicle autonomy and begins producing Optimus robots at scale.