Three weeks ago, Elon Musk’s AI company xAI announced it had raised $20 billion in a Series E funding round. Now it turns out that Tesla is one of the investors.
Tesla said in a letter to shareholders Wednesday that it has invested $2 billion in xAI, the Grok chatbot startup that also owns Musk’s social media company X. Previously disclosed investors in xAI include Valor Equity Partners, Fidelity, Qatar Investment Authority, as well as NVIDIA and Cisco as “strategic investors.”
This is a truly circular deal, and Tesla shareholders voted against it last year. In November, Tesla asked shareholders in a non-binding action to have Tesla’s board approve an investment in xAI. According to a Bloomberg report at the time, about 1.06 billion people voted in favor of the move, while 916.3 million voted against it. Although it looks like an approval, the number of abstentions (counted as no votes in Tesla’s bylaws) means the bill has been rejected.
Tesla proceeded anyway, making the case in support of the investment in letters to shareholders and earnings calls. Tesla’s justification seems to have to do with xAI’s alignment with its latest master plan and how these companies are trying to get even closer.
“As defined in Part 4 of the Master Plan, Tesla is building products and services that bring AI to the physical world, while xAI is developing key digital AI products and services, including large-scale language models (Grok),” the letter to shareholders said. “In that context, and as part of Tesla’s broader strategy under Master Plan Part IV, Tesla and xAI have also entered into a framework agreement related to the investment.”
Tesla said the agreement built on its existing relationship with xAI by “providing a framework for evaluating potential AI collaborations between the two companies.” Musk confirmed last year that Tesla is supplying Megapack batteries to power its xAI data centers and that the company is equipping some of its vehicles with the xAI chatbot Grok. Bloomberg also reported that xAI told investors it plans to build AI for humanoid robots like Tesla’s Optimus.
Musk pointed out that there are many tasks Tesla can perform internally. “But if xAI can help accelerate our progress, why shouldn’t we do it?” he asked. “That’s why we moved forward with investments like this, because it’s part of a strategic initiative.”
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In a letter to shareholders, Tesla highlighted these and other developments in physical AI and robotics, including plans to develop Optimus robots, semi-trucks, and other autonomous capabilities. Although the company mostly beat Wall Street expectations for earnings and sales, profits fell 46% last year.
“This investment and related framework agreement is designed to enhance Tesla’s ability to develop and deploy AI products and services in the real world at scale,” Tesla said in a letter to shareholders.
The investment is expected to close in the first quarter.
Musk and Tesla Chief Financial Officer Vaibhav Taneja indicated on the earnings call that they expect other capital investments to support that mission.
“This year for Tesla is the first big step in making our vehicles more autonomous and starting large-scale production of the Optimus robot. We are making a very large investment,” Musk said on a conference call. “So we’re going to have a very large capital investment here. This is planned, because we’re investing a lot for a grand future.”
