4 investors filed a lawsuit against the businessman and the automaker because they believed that the billionaire favored a competing company
Investors of Tesla filed a lawsuit against the company’s co-founder, Elon Musk, on Thursday (June 13). The reason was the founding, in 2023, of the artificial intelligence company xAI, which they consider a competitor to the electric vehicle manufacturer. The information is from Business Insider.
They also claim that the businessman – who also owns X (former Twitter) – diverted resources and personnel specialized in AI from Tesla to quickly launch a chatbot of artificial intelligence to compete with ChatGPT, from OpenAI and the Bard (renamed as Gemini), from Google: Grok.
“Based on information and belief, xAI is leveraging both Tesla engineering and data to match its competitors. If Musk had not inappropriately diverted resources from Tesla to xAI, it would have taken years for xAI to launch its first chatbot, not just months.”, say investors in the stock. Here’s the complete (PDF – 2 MB).
In the process filed in the State of Delaware, where Tesla is based, investors claim that “for years, Musk and Tesla have consistently said that artificial intelligence would be the key to the company’s future” and cited the attempt to unite OpenAI (maker of ChatGPT co-founded by Musk in 2015) and the car company.
Elon Musk stepped away from OpenAI in 2018 because, according to him, being in a leadership position in two artificial intelligence companies became a conflicting job.
At the time, Tesla had already started investing in the development of AI aimed at the company’s cars, which have models capable of traveling without a driver and are trained using a large amount of data such as traffic patterns.
In a post from January this year, Musk had admitted that, although Tesla had begun to focus its efforts on developing artificial intelligence, it had become “uncomfortable” grow the company to become a “leader in AI”.
To the Financial Timesthe billionaire stated in April 2023 that the “frenzy” around artificial intelligence after the launch of ChatGPT in 2022 transformed the recruitment of software engineers a “challenge”.
According to the businessman, it would be easier to find experts if they could become co-founders of a company.
“Musk admitted that he was inspired to establish this venture [a xAI] hot on the heels of the launches of Microsoft-backed OpenAI’s ChatGPT-4 products and Google’s Bard chatbot“, say the investors in the process, who also mention that, from 2021 to 2022, the businessman sold more than US$39 billion in Tesla shares, becoming only 13% of the company’s control (in 2018, he had around 21%).
Diversion of resources
The process also questions an alleged diversion of resources from Tesla to xAI, based, among other things, on reports from former employees of the automaker and Nvidia, the main supplier of chips for the development of artificial intelligence.
Since the boom in generative AI models (such as ChatGPT and Gemini), several companies in the industry are in a race for high-performance chips.
On June 4, the CNBC showed that Musk told Nvidia to send xAI chips that were reserved for Tesla. According to a logistics analyst interviewed by the broadcaster, due to the shortage of chips, the “redirection” was “extreme”.
The report mentions that the businessman’s guidance caused the automaker to stop receiving more than US$500 million in graphics processing units, which could delay the configuration of Tesla’s supercomputers used to develop autonomous cars.
Pressure on the board and drugs
In the process, the investors also claim that Musk does what he wants in the company because the directors are afraid to confront him. They say that Musk’s power and pressure on Tesla’s board is so great that the company’s top executives feel “pressured to use drugs” with him, citing a report from the Wall Street Journal February this year.
“In the culture that Musk has created around him, some friends, including directors, feel that there is an expectation for them to take drugs with him because they understand that refusal could upset the billionaire, who provided them with a lot of money. […] Furthermore, they don’t want to risk losing the social capital that comes with proximity to Musk, which for some resembles proximity to a king.”says an excerpt from the article by WSJ.
What investors ask for
The following requests were presented to the Delaware Court:
- hold individual defendants (Elon Musk, Tesla and 7 other company representatives) responsible for breach their fiduciary duties;
- O payment to Tesla for damages the company suffered as a result of the defendants’ breaches of fiduciary duties, including severance pay;
- O payment to Tesla for the losses it incurred as a result of the “Musk’s unjust enrichment”;
- expropriation of shareholding of Musk at xAI in favor of Tesla;
- impose a constructive trust (a kind of preventive measure to avoid illicit gains) about Elon Musk’s interest in xAI; It is
- any other additional remedy the court considers “fair and appropriate”in the words of investors.
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