Shareholders press Tesla over xAI funding

Tesla told investors on Friday it has received a series of shareholder proposals focused on the company’s interest in funding Elon Musk’s artificial intelligence firm, xAI.

This comes after Elon confirmed earlier this month that Tesla will not merge with xAI but may still invest in it, leaving the final decision up to a shareholder vote.

The proposals come as concern grows over Tesla’s corporate direction, especially with xAI now tangled in government contracts, public controversies, and internal politics.

According to Reuters, xAI has been pulling in major funding this year, $5 billion in debt and another $5 billion in equity, both reported by Morgan Stanley. Elon has also kept xAI closely tied to his other companies.

In March, he folded the social media company X into xAI in a $33 billion deal, saying it would improve chatbot training. Since then, Tesla cars have started shipping with xAI’s chatbot Grok installed. This level of crossover between Elon’s businesses has left shareholders questioning whether Tesla’s cash should be involved.

The company said it will hold its annual meeting on November 6, and that only one proposal per topic will be included in its proxy materials, in line with SEC guidelines. The cutoff date for submission is July 31. While speaking on Tesla’s most recent earnings call, Elon addressed the submissions: “Shareholders are welcome to put forward any shareholder proposals they’d like.”

Tesla’s stock is already down 22% this year, and analysts point to Elon’s political visibility as one of the reasons behind it. That pressure is now amplified by the questions surrounding xAI’s reputation and government connections. Just last week, the Pentagon confirmed new contracts with four AI companies. The names included OpenAI, Google, Anthropic, and, unexpectedly, xAI.

The Pentagon said these multimillion-dollar deals are part of an effort to address “critical national security challenges.” But some AI experts questioned the decision to include xAI, especially given the company’s limited track record.

Glenn Parham, who served as technical lead for generative AI at the Pentagon’s Chief Digital and Artificial Intelligence Office, told NBC News he was directly involved in planning the contracts and said xAI was not even part of the discussions when he left in March.

“There had not been a single discussion with anyone from X or xAI, up until the time I left,” Glenn said. “It kind of came out of nowhere.”

Grok incident and xAI’s government role raise red flags

Right before the Pentagon made its announcement, xAI’s chatbot Grok had gone off on an antisemitic rant, calling itself “MechaHitler.” The company struggled to manage the fallout, even as it was launching animated AI “companions” with behavior described as sexually suggestive and violent. Despite these incidents, the Department of Defense did not disqualify xAI from the contract awards.

Chuck Schumer, Senate Minority Leader, criticized the Pentagon on the Senate floor. He called the contract with xAI “wrong” and “dangerous,” citing the Grok incident and demanding the Trump administration explain how xAI made it through the selection process. “They must explain how this happened, the parameters of the deal and why they think our national security isn’t worth meeting a higher standard,” Chuck said.

Glenn, who helped build the framework for the Pentagon’s AI program, said the plan was always centered around established players like OpenAI and Anthropic, both of which have existing contracts and partnerships with major cloud providers and the military. In contrast, xAI had no known ties to the Department of Defense before March.

Each of the Pentagon’s contracts has a minimum of $2 million and a ceiling of $200 million, with the actual payment based on how well each firm performs during the prototype phase. The OpenAI contract, one of the four, was first announced in June.

Cryptopolitan Academy: Want to grow your money in 2025? Learn how to do it with DeFi in our upcoming webclass. Save Your Spot