Tesla Shareholders Sue CEO Elon Musk Over Alleged Resource Diversion to xAI Startup
Summary:
Tesla shareholders have filed a lawsuit against CEO Elon Musk and the company's board, alleging that Musk's xAI startup is competing with Tesla by siphoning off resources and AI talent. The complaint coincides with a reapproval of Musk's $44.9 billion pay package by shareholders. The lawsuit claims Musk diverted vital assets from Tesla to xAI, recruiting key AI professionals and redirecting hardware from Nvidia originally bound for Tesla. The shareholders now seek a return of the value they allege has been redirected away from Tesla.
A legal action has been initiated against Tesla CEO Elon Musk and the company's board by shareholders who allege that Musk's xAI startup amounts to a rival business that is depleting the automaker's artificial intelligence resources and expert staff. This move coincides with the reinstatement of Musk's $44.9 billion compensation package by shareholders, following the package's previous nullification by a Delaware judge in January. The Cleveland Bakers and Teamsters Pension Fund, along with Daniel Hazen and Michael Giampietro, have lodged the June 13 complaint on Tesla's behalf at Delaware's Chancery Court. The claimants argue that Musk has deflected valuable assets and expertise from Tesla to xAI, securing billions for the startup, often boasting about xAI's ability to access Tesla's AI-specific data. Tesla has consistently promoted its vehicles' assisted driving features, underlined by AI-powered self-driving capabilities. The claimants note that several key AI professionals have been poached from Tesla by Musk's xAI, most significantly Tesla computer vision team leader, Ethan Knight, who moved across in March 2024. The lawsuit, influenced by a CNBC report in early June, states Musk had instructed Nvidia to reroute graphic processing units (GPUs) - instrumental to AI models - originally intended for Tesla, to xAI and X. Musk justified his move by stating the GPUs would have been left in storage, as Tesla had no destination for them. The shareholders have criticized the inactivity of fellow board members, accusing them of not attempting to uphold their fiduciary responsibility to both Tesla and its shareholders, in spite of Musk's overt disloyalty, and have permitted him to generate billions in AI-related profits for a company other than Tesla. The legal action seeks a return of the value that has allegedly been diverted away from Tesla. Tesla Inc's shares have seen a decline of 26.5% this year, however, on June 13 they did see a small boost of nearly 3%, closing at $182.47, with a slight 0.13% rise in after-hours trading. The origin of xAI is linked to Musk's unsatisfactory voting control share of Tesla, which is not near the preferred threshold of 25%. Musk had stated his preference for developing products outside of Tesla if his ideal level of voting control isn't met. Shareholders have interpreted Musk's statement as an indication that he intentionally established xAI to focus on AI-related ventures outside of Tesla, that were previously intended to be developed within. At the time of Musk's declaration, he held a 21% share in Tesla, however, following the withdrawal of his 2018 compensation plan by Delaware's Chancery Court in January, this was reduced to 13%. The shareholders claim that Musk reacted to this by intensifying operations at xAI. The reinstatement of Musk's 2018 remuneration package by shareholders will face an expected protracted challenge in the courts of the Delaware Chancery and Supreme Court as Tesla seeks to overturn a previous rejection. Tesla has yet to provide a response to a request for comment.
Published At
6/14/2024 7:39:41 AM
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