Tesla to invest $2B in Elon Musk’s xAI

Just three weeks after xAI, Elon Musk’s artificial intelligence company, announced it had raised $20 billion in a Series E funding round, Tesla has confirmed it is one of the investors.

Tesla disclosed in a letter to shareholders released Wednesday that it has committed $2 billion to xAI, the company behind the Grok chatbot, which also owns Musk’s social media platform X. Previously disclosed investors in xAI include Valour Equity Partners, Fidelity, the Qatar Investment Authority, as well as Nvidia and Cisco, both listed as strategic investors.

The deal marks a circular relationship between Musk-led companies — and one that Tesla shareholders had previously rejected. In November, shareholders voted on a nonbinding proposal that would have allowed Tesla’s board toauthorisee an investment in xAI. About 1.06 billion shares were voted in favour, while 916.3 million were opposed, according to reporting from Bloomberg. However, under Tesla’s bylaws, abstentions count as votes against, meaning the proposal ultimately failed.

Despite that outcome, Tesla moved forward with the investment and offered a detailed justification both in its shareholder letter and during its earnings call. The company framed the decision as closely aligned with its most recent long-term strategy, Master Plan Part IV, and suggested that Tesla and xAI are set to work more closely together.

“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),” Tesla wrote in the shareholder letter. “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.”

According to Tesla, the framework agreement builds on an existing relationship by establishing a process for evaluating future AI collaborations between the two companies. Tesla already supplies Megapack battery systems to power xAI’s data centres, a relationship Musk confirmed last year. The automaker has also integrated the Grok chatbot into some of its vehicles. Bloomberg has additionally reported that xAI has told investors it plans to develop AI systems for humanoid robots, including platforms similar to Tesla’s Optimus.

Musk defended the investment during the earnings call, acknowledging that while Tesla can handle many AI-related tasks internally, there are strategic advantages to working with xAI.

“There are many tasks Tesla can do internally,” Musk said. “But if there are things xAI can help accelerate our progress, then why should we not do that? And that is the reason why we’ve gone ahead with such an investment. Because this is part of the strategic initiative.”

In its shareholder letter, Tesla emphasised that the xAI investment fits into a broader push toward physical AI and robotics. The company highlighted ongoing work on Optimus, its semitruck program, and advancements in autonomous driving technology. While Tesla reported earnings and revenue that broadly exceeded Wall Street expectations, its annual profit declined 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,” the company said.

Tesla expects the xAI investment to close during the first quarter.

During the earnings call, Musk and Tesla Chief Financial Officer Vaibhav Taneja also signalled that additional capital spending is on the horizon as the company ramps up its ambitions.

“This year for Tesla is the first major steps as we increase vehicle autonomy and begin to produce Optimus robots at scale — we’re making very, very big investments,” Musk said. “So this is going to be a very big capex year; that is deliberate, because we’re making big investments for an epic future.”