Tesla shareholders sued Musk for launching a competing AI company.

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Tesla shareholders are suing CEO Elon Musk and members of the automaker's board of directors over Musk's decision to launch xAI, which they say is a competing AI company, and then take talent and resources away from Tesla. Turn to new start-ups.

The lawsuit is one of the most direct challenges to Musk's decision to launch xAI, and comes after he threatened to develop AI outside of Tesla unless he was given more voting control over the company.

The lawsuit was also filed hours before Tesla hosts its annual meeting, where shareholders will likely vote to reauthorize a $56 billion compensation package that was struck down by a judge earlier this year. had done

Musk has long claimed that Tesla's real value is that it's not just an electric vehicle maker, but that it's actually an AI company. That claim is one reason Tesla's stock is worth more than a tech company, and worth more than all four major automakers combined.

The new complaint was filed Thursday in Delaware Chancery Court by the Cleveland Bakers and Teamsters Pension Fund, Daniel Hazen and Michael Giampietro on behalf of Tesla itself. In it, they allege that Musk and Tesla's board members breached fiduciary duties to shareholders and unfairly enriched Musk by allowing the CEO to launch a competing company.

Plaintiffs in the lawsuit also say that Musk violated Tesla's business ethics by creating and leading xAI, and that the board has allowed Musk to continue violating that code unimpeded. They are asking the court to force Musk to liquidate his stake in xAI and hand it over to Tesla.

“The idea that the CEO of a large, publicly traded Delaware corporation — with the express approval of his board — could launch a competing company, and then divert talent and resources from his corporation to the startup Can, is ridiculous,” the complaint reads. It compares Musk's actions to a hypothetical situation involving the CEO of Coca-Cola starting a rival soft drink company and shipping ingredients to it.

Musk launched xAI in 2023 and recently secured $6 billion in funding for the startup, which aims to compete with rivals like OpenAI, Microsoft and Alphabet.

Plaintiffs note that, soon after, Tesla began diverting talent and resources from Tesla to xAI. The lawsuit says at least 11 employees have joined xAI directly from Tesla, and describes how Tesla is allegedly giving xAI access to its own AI-related data.

The plaintiffs also point to CNBC reporting that Musk diverted a large batch of AI processors from Nvidia that were earmarked for Tesla for his social media company X, formerly known as Twitter. Musk posted on X a few weeks ago that Tesla will spend $10 billion this year on “collaborative training and predictive AI,” and he's also said that Nvidia's expensive chips will be needed to help Tesla develop AI and robotics. Help me become a leader. “

Musk admitted. to turn the chips over to X, claiming that Tesla's new data center in Texas is still under construction and doesn't have the storage capacity.

The board has allowed Musk, Tesla's CEO and largest stockholder, to found and lead another AI company. wresting resources from Tesla and diverting them to xAI; and to create billions in AI-related value at a company other than Tesla,” the plaintiffs write. and has also completely failed to attempt to fulfill its unwavering fiduciary duty to protect the interests of its stockholders.”

Earlier this week, other Tesla shareholders filed a separate lawsuit against Musk, claiming he used inside information to make billions of dollars by selling the automaker's stock in 2021 and 2022.

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