On Thursday, July 25, CEO Elon Musk announced that he and Tesla’s board will consider investing $5 billion in his artificial intelligence startup xAI, raising worries about potential conflicts of interest.
Musk, the wealthiest individual globally, introduced xAI last year to rival Microsoft-supported OpenAI. That raised worries that he might distribute some of the automaker’s resources to the AI company.
A large number of Musk enthusiasts backed the concept: Musk initiated a survey on Tuesday, querying users on social media platform X about whether Tesla should put $5 billion into xAI. Over two-thirds of almost 1 million participants supported the proposal. The number of Tesla investors is uncertain.
The survey was conducted right after Tesla announced that its automotive gross margin and profit for the second quarter did not meet expectations from Wall Street, due to the company reducing prices and providing incentives to increase sales.
“It appears that the public is supportive.” Musk stated in a post on X on Thursday that he will talk with the Tesla board.
In Tuesday’s earnings conference call, Musk mentioned that xAI could benefit the development of full self-driving and the establishment of Tesla’s new data center. He also proposed the possibility of incorporating xAI’s chatbot, Grok, into Tesla’s software.
Despite receiving a large amount of investment, the majority of AI companies are still figuring out their business models and investing heavily in technology.
Brent Goldfarb, a professor at the University of Maryland’s business school, finds it difficult to argue that this is in the best interest of Tesla shareholders, as he sees it as a redistribution of Tesla’s wealth.
In AI as a whole, there is uncertainty about where the profits will come from and who will be funding it. He stated that currently AI shows all the characteristics of a bubble.
In 2018, Musk departed from OpenAI, a company he helped create, due to a possible upcoming clash with Tesla, a company working on AI technology for autonomous cars.
Musk announced in April that xAI is bringing on board engineers from Tesla to prevent talent loss to Open AI.
Musk’s xAI secured $6 billion in a series B funding in May, resulting in a post-money valuation of $24 billion. Andreessen Horowitz and Sequoia Capital are among the investors.
Musk previously stated his intention for a quarter of xAI to be owned by investors in X, which he acquired for $44 billion. The worth of the social media company has drastically dropped since that time.
Musk has been previously criticized for possible conflicts of interest due to his ownership and management of numerous companies. Certain Tesla investors claimed that the purchase of SolarCity, a solar company co-founded by Musk and his relatives, in 2016 for $2.6 billion was seen as a form of financial assistance. However, the Delaware Supreme Court last year confirmed a decision stating that Musk did not pressure the electric car company to pay too much for SolarCity.