Tesla Shareholders Sue Elon Musk for Transferring Resources to New ‘Competing Company’

Tesla shareholders have filed a lawsuit against CEO Elon Musk and the company’s board. They accuse Musk of diverting valuable resources and talent from Tesla to his new venture, xAI.

This development comes from a shareholder vote to reestablish Musk’s $44.9 billion compensation package, which a Delaware judge previously nullified in January.

Tesla Shareholders Sue Musk

The complaint, filed in Delaware’s Chancery Court, began with the Cleveland Bakers and Teamsters Pension Fund and gained support from individual investors Michael Giampietro and Daniel Hazen.

The plaintiffs allege that Musk has been channelling scarce talent and critical resources from Tesla to xAI, a startup he recently founded. They claim that the new firm is a direct competitor in the artificial intelligence domain.

The shareholders’ lawsuit centres on the assertion that Musk has strategically transferred key AI personnel from Tesla to xAI. Among these transfers is the notable departure of Ethan Knight, Tesla’s former head of the computer vision team, who joined xAI in March 2024.

The shareholders argue that this move has deprived Tesla of vital expertise necessary for its AI-driven projects, including its renowned self-driving and driver assistance technologies.

Besides that, the lawsuit referenced a report from CNBC, alleging that Musk directed Nvidia to reroute graphics processing units (GPUs) to xAI and the X platform.

GPUs are crucial for AI model computations, and this alleged diversion is seen as a significant shift of resources. Musk defended this action on the X platform, claiming that the GPUs would have otherwise remained unused in a warehouse because Tesla lacked suitable deployment locations for these components.

Meanwhile, this lawsuit arrives at a challenging time for Tesla. The company’s stock has fallen 26.5% this year, reflecting broader investor concerns. However, on June 13, Tesla shares saw a slight rebound, closing nearly 3% higher at $182.47, with a modest 0.13% increase in after-hours trading.

Shareholders’ References 

The plaintiffs also criticize Tesla’s board of directors for their inaction, accusing them of failing to uphold their fiduciary duties.

They claim that the board has allowed Musk to prioritize the development of xAI over Tesla. This leverage has enabled him to create substantial AI-related value for the startup at the expense of Tesla’s interests.

Notably, the lawsuit seeks restitution for the value the shareholders believe has been wrongfully diverted from Tesla to xAI. In a twist that adds depth to the ongoing legal battle, Tesla shareholders pointed to a revealing statement made by Elon Musk. 

The statement, made in January on the X platform, expressed Musk’s discomfort with expanding Tesla’s AI and robotics initiatives. He stated that without 25% voting control, he would prefer to develop products outside of Tesla.

At the time of this comment, Musk owned approximately 21% of Tesla. A significant development occurred when Delaware’s Chancery Court nullified Musk’s 2018 compensation plan in January, reducing his ownership stake to 13%.

This reduction in ownership diluted Musk’s voting power and influence over Tesla’s strategic decisions.