Tesla's Investment in xAI
Tesla disclosed an investment of approximately $2 billion in xAI, Elon Musk’s private AI company, as part of xAI's recent Series E financing round. This information was included in Tesla's Q4 2025 earnings report. The investment, made on January 16, 2026, was for Series E Preferred Stock and occurred on market terms consistent with those offered to other investors.
xAI recently announced it raised $20 billion in its Series E round, valuing the company at about $230 billion. Tesla's $2 billion investment accounts for 10% of that round. Other investors in the round included Nvidia, Cisco, Qatar’s sovereign wealth fund, and Fidelity.
Justification for the Investment
Tesla stated the investment aligns with "Master Plan Part IV," aiming to develop products and services that integrate AI into the physical world.
Tesla highlighted xAI's development of digital AI products, such as its large language model Grok. A framework agreement was also established between Tesla and xAI to evaluate potential AI collaborations. This collaboration intends to enhance Tesla's capability to deploy AI products and services at scale. The investment is subject to regulatory conditions and is expected to close in Q1 2026.
Ongoing Shareholder Lawsuit
This investment takes place while Tesla shareholders are pursuing a lawsuit against Elon Musk, alleging breach of fiduciary duty. The lawsuit, filed in June 2024, claims that Musk diverted AI resources, talent, and opportunities from Tesla to xAI.
The lawsuit argues that after his Tesla ownership stake fell below 20%, Musk founded xAI, shifting AI ambitions previously associated with Tesla to a company he fully controls.
The lawsuit references Musk's departure from OpenAI's board in 2018 due to a stated "conflict of interest" with Tesla's own AI efforts. Shareholders are requesting the court to mandate the transfer of Musk's xAI ownership to Tesla. Concerns have been raised regarding Tesla AI engineers reportedly moving to xAI. Additionally, xAI is reported to have significant operational costs.
Context of the Investment
The investment by Tesla in xAI occurs as litigation is ongoing, prompting discussion regarding corporate governance.
An independent board would typically consider the resolution of such litigation before committing significant shareholder capital to a company at the center of the dispute.