Tesla invested $2B in Elon Musk’s xAI

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

Tesla disclosed in a letter to shareholders on Wednesday that it invested $2 billion in xAI, the startup behind the Grok chatbot that also owns Musk’s social media company X. Other previously disclosed 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 and one that Tesla shareholders voted against last year. In November, shareholders were asked in a nonbinding measure to allow the Tesla board to authorize an investment in xAI. About 1.06 billion votes were in favor, and 916.3 million opposed, per Bloomberg’s reporting at the time. While that would seem like an approval, the number of abstentions — which count as votes against in Tesla’s bylaws — meant the measure was rejected.

Tesla proceeded anyway and offered up an argument in support of the investment. Tesla’s justification appears to be tied to xAI’s alignment with its most recent master plan — and how these companies are about to get a lot closer.

“As set forth in Master Plan Part IV, Tesla is building products and services that bring AI into 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 also entered into a framework agreement in connection with the investment.”

Tesla said the agreement builds upon 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 year, and the company has included the xAI chatbot Grok into some of its vehicles. Bloomberg also reported that xAI told investors it plans to build AI for humanoid robots like Tesla’s Optimus.

In its letter to shareholders, Tesla highlighted these and other developments in physical AI and robotics, including plans for developing its Optimus robot, semitrucks, and other autonomous capabilities. The company broadly beat Wall Street estimates on earnings and revenue, but profit fell 46% last year.

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

The investment is expected to close in the first quarter.