Elon Musk turns to Tesla and SpaceX to fuel his AI ambitions

Musk’s xAI expects to burn through about $13 billion over the course of 2025, Bloomberg News has reported, meaning that its prolific fundraising efforts are just barely keeping pace with expenses.

Enter Elon Inc., the overlapping and ever-expanding constellation of businesses that could help extend the runway available to the cash-gobbling AI business.

The issue is, not every Tesla investor wants to tap the EV maker’s $1 trillion valuation to serve as Musk’s piggy bank. And xAI’s chatbot, known as Grok, comes with its own risks. On Friday, Grok’s account on X issued a lengthy apology for “the horrific behavior that many experienced” after it referred to itself as “MechaHitler” with posts that praised Adolf Hitler and appeared to call the Holocaust “effective.”

Tesla Impact

While Tesla remains the most valuable automaker in the world, declining sales and a backlash to Musk’s work slashing the federal government in the Trump administration have sent shares down about 22% this year. The company’s stock

An investment into xAI will “further dilute the declining EV business,” said Nancy Tengler, CEO and chief investment officer of Laffer Tengler Investments.

Still, Tengler says any such investment is likely to be approved by Tesla shareholders, many of whom remain extremely loyal to Musk. Tengler says the 2016 all-stock deal to buy Solar City serves as a precedent, which was approved by shareholders despite some pushback, including lawsuits.

“Shareholders will view it as a positive,” Tengler said. “I think xAI will continue to increase in valuation and an investment into the company will allow Tesla shareholders to participate.”

Tesla has set Nov. 6 as the date of its next annual meeting, but has yet to release its proxy. Tesla; Musk; Robyn Denholm, the chair of Tesla’s board of directors; and Travis Axelrod, Tesla’s head of investor relations, did not respond to requests for comment.

Musk’s companies have a long history of working with each other. Tesla sells its utility-scale Megapack batteries to xAI, which is expanding its “Colossus” data center in Memphis. From January 2024 through February of this year, xAI spent about $230 million on Megapacks, according to a Tesla filing.

Musk and other executives have discussed building up vertically integrated AI infrastructure, according to a person familiar with the matter. To do that, xAI would need global distribution and fast connectivity at scale, which could be aided by Starlink, the constellation of more than 7,000 satellites in low-earth orbit operated by Musk’s SpaceX, this person said.

They said Starlink could serve as the distribution backbone for xAI’s language models, which would make an investment in xAI a bet on a future mega-client. The Wall Street Journal earlier reported that SpaceX agreed to invest in xAI.

Grok Integration

Tesla is also integrating Grok into its electric vehicles.

“You can now talk to Grok, your AI companion built by xAI, hands-free in your Tesla vehicle,” according to Tesla’s website. “You can choose Grok’s voice and personality, ranging from Storyteller to Unhinged, to enhance convenience while you’re on the go.”

Last year, Musk said that he wanted to have 25% voting control of Tesla before expanding its artificial intelligence and robotics efforts and that, without that control, he would “prefer to build products outside of Tesla.” Since then, Tesla has continued to work on Optimus, its humanoid robot.

“If Elon can make the case that xAI could help Tesla’s AI in the future then it makes sense for Tesla to invest,” said Seth Goldstein, a senior equity analyst at Morningstar. “However, Elon has said in the past that xAI and Tesla’s AI are completely different. If this is likely to remain the case then investing in xAI only makes sense from a private equity standpoint if the board concludes xAI’s value is likely to rise. Otherwise the board should turn down the opportunity.”