Tesla shareholders sue CEO Musk over competing AI company, xAI
Tesla shareholders have filed a lawsuit against CEO Elon Musk and the company's board of directors. The legal action is in response to Musk's recent launch of xAI, a new artificial intelligence (AI) company. The shareholders claim that xAI is a direct competitor to Tesla and that Musk is diverting resources and talent from Tesla to benefit his new venture. The lawsuit was filed by the Cleveland Bakers and Teamsters Pension Fund, along with two individual shareholders.
Shareholders accuse Musk of breaching fiduciary duties
The lawsuit alleges that Musk and the board have breached their fiduciary duties to shareholders by allowing Musk to launch a competing business. The plaintiffs argue that this action unjustly enriches him at Tesla's expense. "The notion that the CEO of a major, publicly-traded Delaware corporation could - with the evident approval of his board - start a competing company, and then divert talent and resources from his corporation to the startup, is preposterous," reads the lawsuit.
Allegations of ethical code violation and resource diversion
The lawsuit also accuses Musk of violating Tesla's code of business ethics by creating and leading xAI. It alleges that the board has allowed Musk to continue violating this code without any intervention. The plaintiffs are seeking a court order that would require Musk to give up his stake in xAI and transfer it to Tesla. This legal challenge follows Musk's previous threats to develop AI outside of Tesla unless he was granted more control over the company.
Musk's influence on Tesla's AI focus and resource allocation
Musk has long positioned Tesla as an AI powerhouse, a claim that has significantly boosted Tesla's stock price. The lawsuit notes that shortly after xAI's launch in 2023, Tesla began redirecting talent and resources to the new venture. At least 11 employees have reportedly transitioned from Tesla to xAI. The lawsuit also alleges that Musk diverted a significant shipment of AI processors from NVIDIA, originally intended for Tesla, to his social media company X.
