Elon Musk Considers Tesla Investment in AI Startup xAI

Elon Musk is exploring a new strategic move for Tesla, suggesting that the electric vehicle maker invest $5 billion into his artificial intelligence startup, xAI. This proposal was introduced through a poll on X (formerly Twitter) on Tuesday evening. Musk stated, “Board approval and shareholder vote are needed, so this is just to test the waters.”

Poll Results Indicate Strong Support

By midmorning on Wednesday, the poll had attracted over 750,000 votes, with approximately 69% in favor of the proposed investment. However, it’s important to note that not all voters are Tesla shareholders, which might influence the final decision. Tesla has not yet provided a response to inquiries regarding the potential investment in xAI.

Valuation and Potential Stake

xAI, Musk’s recently launched startup, recently raised $6 billion, bringing its valuation to around $24 billion. If Tesla proceeds with the $5 billion investment, it could potentially acquire 10% to 15% of the company. For Tesla, this investment could open doors to new AI technologies. Currently, Tesla’s focus is primarily on autonomous driving and automotive AI.

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Musk’s Vision for AI and Tesla

The role of AI within Tesla and the future of its AI projects have been a topic of significant interest among investors. Earlier this year, Elon Musk expressed a desire to have 25% voting control of Tesla stock. He aimed to ensure that AI projects remain within the company. Currently, he controls about 20% of Tesla stock, including stock options. Recent developments have contributed to the discussion, including stories about engineers choosing to work at xAI. Additionally, Tesla’s transfer of Nvidia microchips to the startup has also been a topic of interest.

Financial Considerations and Market Reactions

During Tesla’s quarterly earnings call on Tuesday, Elon Musk addressed concerns about xAI. He clarified that the Nvidia chips allocated to xAI were surplus to Tesla’s needs. Additionally, Musk explained that xAI’s engineers are focused on artificial general intelligence (AGI) rather than addressing Tesla-specific issues.

Despite the potential benefits, the investment in xAI is subject to debate. Automotive investments in startups are not unprecedented, with Ford and Amazon backing Rivian Automotive. Yet, Tesla’s identity as a robotics and AI company aligns with this proposed investment.

Stock Performance and Future Outlook

Tesla ended the second quarter with over $30 billion in cash, giving it the financial capability to make the xAI investment. However, the decision’s wisdom remains a point of discussion among investors and Wall Street. Tesla stock fell 12% in midday trading following the announcement of disappointing second-quarter results. The company reported adjusted earnings of 52 cents per share, missing Wall Street’s forecast of 61 cents. The S&P 500 and Dow Jones Industrial Average were down 1.1% and 0.5%, respectively.

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