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Lawsuit Against Musk and Tesla Over AI Stuff
Lawsuit Against Musk and Tesla Over AI Stuff
Transaction ID 73381641
Case No. 2024-0646-
IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
INTRODUCTION ........................................................................................ 1
PARTIES ...................................................................................................... 8
SUBSTANTIVE ALLEGATIONS ............................................................ 13
A. For Years, Musk and Tesla Consistently Tout AI As The Key To
The Company’s Future ................................................................. 13
B. Musk Attempts To Merge OpenAI and Tesla, Then Resigns From
OpenAI Because Of The Conflict Created By His Simultaneous
Stewardship of Two AI Companies ............................................. 24
C. Musk Becomes “Uncomfortable Growing Tesla To Be a Leader in
AI & Robotics Without Having ~25% Voting Control” and
Develops a “Prefer[ence] to Build [AI] Products Outside of
Tesla.”........................................................................................... 26
D. Acting On His Preference to “Build [AI] Products Outside of
Tesla,” Musk Founds xAI and Begins Redirecting Scarce AI
Resources From Tesla to xAI ....................................................... 29
E. After This Court Rescinds Musk’s Pay Package and Reduces His
Stake in Tesla, Musk Accelerates the Growth of xAI, Raising
Billions of Dollars and Poaching at Least Eleven Employees From
Tesla ............................................................................................. 40
F. The Board Permits Musk to Create and Grow xAI, Hindering
Tesla’s AI Development Efforts and Diverting Billions of Dollars
in Value from Tesla to xAI .......................................................... 46
DERIVATIVE ALLEGATIONS ............................................................... 52
DEMAND IS EXCUSED AS FUTILE ...................................................... 53
COUNTS..................................................................................................... 69
PRAYER FOR RELIEF ............................................................................. 72
–i–
Plaintiffs Cleveland Bakers and Teamsters Pension Fund, Daniel Hazen, and
Complaint alleging: (i) breaches of fiduciary duty against Defendants Elon Musk
themselves, the investigation of counsel, and on information and belief as to all other
matters.
INTRODUCTION
company on the side, then divert scarce ingredients from Coca-Cola to the startup?
Could the CEO of Goldman Sachs loyally start a competing financial advisory
company on the side, then hire away key bankers from Goldman Sachs to the
startup? Could the board of either company loyally permit such conduct without
1
This Complaint refers to Kimbal Musk as “Kimbal” solely to distinguish him from his
brother, Elon Musk. No disrespect is intended.
–1–
2. The notion that the CEO of a major, publicly-traded Delaware
company, and then divert talent and resources from his corporation to the startup,
3. For years, Tesla and Musk have touted artificial intelligence (“AI”) as
the key to Tesla’s future and represented that Tesla is, above all else, an AI
future value of Tesla as a whole. Cathie Wood identified success in the AI space
2
See Guth v. Loft, 5 A.2d 503, 515 (Del. 1939) (“A genius in his line he may be, but the
law makes no distinction between the wrong doing genius and the one less endowed.”).
3
Elon Musk (@elonmusk), X (Jan. 3, 2024 12:51am), https://x.com/elonmusk/status/
1742423298217033776.
4
Elon Musk (@elonmusk), X (Apr. 27, 2024 8:13pm), https://x.com/elonmusk/status/
1784375472887066653.
–2–
as a multi-trillion-dollar opportunity for Tesla.5 Adam Jonas stressed the
importance of AI to Tesla and cautioned that “[a]ny change . . . that impedes Tesla’s
. . . investment thesis.”6
talent and resources from Tesla to xAI, and raised billons of dollars for xAI while
are truthful, competent, and maximally beneficial for all of humanity” and a
“mission . . . to understand the true nature of the universe.”7 Every public indication
focus necessarily overlapping with Tesla’s own pursuits. Given the unique
5
Evie Liu, Cathie Wood Thinks Nvidia Has More to Prove. Her Favorite AI Stocks—and
Why She Still Loves Tesla, BARRON’S (Apr. 11, 2024),
https://www.barrons.com/articles/ark-invest-cathie-wood-nvidia-tesla-stock-bitcoin-
aa4a5f78.
6
Tim Higgins, Tesla Was Once About Climate Change, Driverless Cars, AI. Now What?
WALL ST. J. (Feb. 10, 2024), https://www.wsj.com/business/autos/tesla-has-long-been-a-
hope-stock-but-what-are-investors-hoping-for-now-7031171f.
7
xAI, https://x.ai/blog/series-b.
–3–
competition for talent and resources—Tesla and xAI are clear competitors. Musk
has acknowledged that the “talent war for AI is the craziest talent war I’ve ever
seen”8 and the scarcity of processors in the AI industry has been widely reported. 9
7. Already, Musk has diverted scarce talent and resources from Tesla to
xAI. Before establishing xAI, Musk represented that “[c]onvincing the best AI
talent to join Tesla is the sole goal.”10 After founding xAI, Musk hired away
responded that he should join xAI instead.12 In the “craziest talent war” in a
generation, Musk should be Tesla’s general; instead, his priority appears to be xAI.
8
Elon Musk (@elonmusk), X (Apr. 3, 2024 6:00pm), https://x.com/elonmusk/status/
1775644544853221599.
9
See, e.g., Paresh Dave, Nvidia Chip Shortages Leave AI Startups Scrambling for
Computing Power, WIRED (Aug. 24, 2023), https://www.wired.com/story/nvidia-chip-
shortages-leave-ai-startups-scrambling-for-computing-power/.
10
Elon Musk (@elonmusk), X (Jul. 29, 2021 12:51am), https://x.com/elonmusk/status/
1420607874762518528.
11
Becky Peterson, Musk’s xAI is Poaching Engineers From Tesla, THE INFORMATION
(Apr. 3, 2024), https://www.theinformation.com/articles/musks-xai-is-poaching-
engineers-from-tesla.
12
Elon Musk (@elonmusk), X (Dec. 9, 2023 4:19am), https://x.com/elonmusk/status/
1733416090439451114.
–4–
8. Similarly, before establishing xAI, Musk stated that Tesla needed more
Nvidia H100 GPUs than Nvidia had available for sale, a common problem in the
AI industry. Musk stated during a July 2023 earnings call that Tesla would “take
the hardware as fast as Nvidia will deliver it to us” and bemoaned Nvidia’s inability
personally directing Nvidia to redirect GPUs from Tesla to xAI and X. According
GPUs originally slated for Tesla to X instead[.]”13 As CNBC later explained, “By
ordering Nvidia to let privately held X jump the line ahead of Tesla, Musk pushed
back the automaker’s receipt of more than $500 million in graphics processing
9. These striking events are the result of a conflict that Musk has long
13
Lora Kolodny, Elon Musk Ordered Nvidia to Ship Thousands of AI Chips Reserved for
Tesla to X and xAI, CNBC (June 4, 2024), https://www.cnbc.com/2024/06/04/elon-musk-
told-nvidia-to-ship-ai-chips-reserved-for-tesla-to-x-xai.html.
14
Id.
–5–
interest in or expectancy in similar business opportunities and that AI is within
Tesla’s line of business. When that effort failed, Musk resigned from OpenAI and
acknowledged that Tesla and OpenAI are competitors. Specifically, in early 2019,
he acknowledged publicly that “Tesla was competing for some of the same people
departure: “As Tesla continues to become more focused on AI, this will eliminate a
10. Much has changed since 2018. Musk’s recent public statements
in AI & robotics without having ~25% voting control . . . . Unless that is the case,
I would prefer to build products outside of Tesla.”17 At the time of that remarkable
post, Musk beneficially owned approximately 21% of Tesla, including the options
15
Elon Musk (@elonmusk), X (Feb. 16, 2019 11:27pm), https://x.com/elonmusk/status/
1096989482094518273.
16
Fred Lambert, Elon Musk leaves Open AI’s board due to potential conflict with Tesla’s
own AI effort, ELECTREK (Feb. 21, 2018), https://electrek.co/2018/02/21/elon-musk-leaves-
open-ai-tesla-ai-effort/.
17
Elon Musk (@elonmusk), X (Jan. 15, 2024 3:55pm), https://x.com/elonmusk/status/
1746999488252703098.
–6–
rescinded Musk’s 2018 compensation plan in Tornetta v. Musk, 310 A.3d 430 (Del.
11. Following Tornetta, Musk’s desire to increase his voting power to 25%
up operations at xAI. In March 2024, xAI poached its most significant former Tesla
employee, Ethan Knight, who had led Tesla’s computer vision team. In May 2024,
xAI announced that it had completed its Series B funding round, through which it
12. Through all of this, Musk’s fellow directors on the Tesla board of
directors (the “Board”) have done nothing. The Board has allowed Musk—the CEO
and largest stockholder of Tesla—to found and lead another AI company; to plunder
resources from Tesla and divert them to xAI; and to create billions in AI-related
value at a company other than Tesla. Consistent with its long history of
obsequiousness to Musk, the Tesla Board has utterly failed to even attempt to meet
its unyielding fiduciary duty to protect the interests of Tesla and its stockholders in
13. Plaintiffs bring this action to hold Musk and his fellow directors liable
for their disloyalty and to recover for Tesla the value that Musk has, with the tacit
approval of the Board, expropriated from it. The value that has been diverted from
–7–
PARTIES
14. Plaintiff Cleveland Bakers and Teamsters Pension Fund is, and has
been at all relevant times, a beneficial owner of shares of Tesla common stock.
15. Plaintiff Michael Giampietro is, and has been at all relevant times, a
16. Plaintiff Daniel Hazen is, and has been at all relevant times, a
17. Defendant Elon Musk has served as a director of Tesla since 2004
and as Tesla’s CEO since October 2008, naming himself “Technoking” in March
2021. Musk also served as the Chairman of Tesla’s Board from 2004 until
Tesla’s common stock through the Elon Musk Revocable Trust (excluding options).
18. Musk is also Tesla’s controller. Indeed, this Court found in Tornetta
that Musk “wielded the maximum influence that a manager can wield over a
supported a finding that Musk controlled Tesla.19 These factors apply with equal
18
Tornetta, 310 A.3d at 501.
19
Id.
–8–
force here. First, Musk remains Tesla’s single largest stockholder.20 Second, Musk
Musk managed to fully mobilize Tesla and the Board to support his plan to move
Tesla to Texas and ask its stockholders to ratify his judicially rejected compensation
package. Third, more than half of the Board remains beholden to Musk. See
¶¶103–137, infra.
Since May 2002, Musk has served as CEO, Chief Technology Officer and Chairman
exploration company. Musk also runs Neuralink (which aims to plant microchips
20. Defendant Robyn M. Denholm has been a member of the Tesla Board
since August 2014 and has served as the Chair of Tesla’s Board since November
2018. Denholm is also the Chair of the Audit Committee and the Disclosure
20
Form DEF14A at 151 (April 29, 2024), https://www.sec.gov/ix?doc=/Archives/ed
gar/data/1318605/000110465924053333/tm2326076d15_def14a.htm.
21
Tornetta, 310 A.3d at 504.
–9–
and Nominating and Governance Committee. Prior to becoming the chairperson of
Tesla, she served as the COO of Telstra Corporation Ltd. (“Telstra”), where in 2017
resigned from Telstra in connection with assuming the mantle of chairperson from
Musk. Since January 2021, Denholm has been an operating partner of Blackbird
Ventures, a venture capital firm. She is also the Inaugural Chair of the Technology
Council of Australia.
21. Defendant Kimbal Musk is Musk’s brother and has been a member
of the Tesla Board since 2004. Kimbal served as a Director of SpaceX since its
22. Defendant Ira Ehrenpreis has been a member of the Tesla Board
since May 2007 and is the Chair of Tesla’s Compensation Committee. Since 2014,
Ehrenpreis has also been a Managing Partner and co-owner of venture capital firm
DBL Partners, which he co-founded with fellow managing partner and co-owner
Nancy Pfund (“Pfund”), and is a manager of DBL Partners Fund III (“DBL III”).
Both Ehrenpreis and DBL III are investors in SpaceX. Ehrenpreis is an investor
23. Defendant Joe Gebbia has been a member of the Tesla Board since
2022 and is a member of Tesla’s Audit Committee. Gebbia also co-founded Airbnb
– 10 –
24. Defendant Kathleen Wilson-Thompson has been a member of the
Disclosure Controls Committee. From December 2014 to January 2021, she served
as the Executive Vice President and Global Chief Human Resources Officer of
not have any employment other than service on other company boards.
25. Defendant James Murdoch has been a member of the Tesla Board
since July 2017. Murdoch is also a member of Tesla’s Nominating and Governance
2019, Murdoch has also been the Chief Executive Officer of Lupa Systems, a
26. Defendant JB Straubel has been a member of the Tesla Board since
May 2023. Straubel co-founded the Company and served as Tesla’s CTO from May
2005 to July 2019. Straubel also previously served on the board of SolarCity
Committee from August 2006 until its acquisition by Tesla in November 2016.
of the Tesla Board at the time of the challenged conduct and continue to constitute
– 11 –
the entirety of the Tesla Board at present. They are also referred to collectively
herein as the “Board.” The Individual Defendants, excluding Elon Musk, are
headquartered in Austin, Texas. Its stock trades on the NASDAQ Global Select
AI/robotics company that appears to many to be a car company,” 22 and “the biggest
AI project on earth.”23 Tesla was founded in 2003, and the Company debuted its
first product, the Roadster sports car, in 2008, followed by the Model S sedan in
2012, and the Model X SUV in 2015. It continues to design, develop, manufacture,
Tesla also produces three energy storage products—the Powerwall home battery,
sustainable energy company with the acquisition of SolarCity, the leading provider
of solar power systems in the United States.” As described herein, Tesla has
22
Elon Musk (@elonmusk), X (Jan. 3, 2024 12:51am), https://x.com/elonmusk/status/
1742423298217033776.
23
Elon Musk (@elonmusk), X (Apr. 27, 2024 8:13pm), https://x.com/elonmusk/status/
1784375472887066653.
– 12 –
increasingly focused on AI as a fundamental part of its business. For example, it is
Francisco, California. xAI is a startup working in the area of AI and was founded
SUBSTANTIVE ALLEGATIONS
A. For Years, Musk and Tesla Consistently Tout AI As The Key To The
Company’s Future
funding round and joined the Company; he was named CEO in 2008. In its early
years, Tesla was primarily focused on designing and manufacturing fully electric
vehicles and electric vehicle powertrain components. Since its IPO in 2010, Tesla’s
stock has risen significantly, fueled by Musk’s ambitions to build Tesla into a
company focused on much more than just electric vehicles. During the years since
its IPO, Tesla has expanded into solar energy systems, battery technology for
autonomous vehicles.
company” and the first to be valued at more than $1 trillion. Telsa achieved this
– 13 –
outsized valuation because the Company’s investors treated it as a technology and
32. Musk has had a longstanding interest in AI. In his biography of Musk,
33. For many years, Musk and Tesla have touted AI as the key to the
ramping up production and in “Production Hell,” when Musk was worried about
the Company’s survival: “He needed to come up with a grand idea that would turn
the narrative around and convince investors that Tesla would become the world’s
most valuable car company.” That idea was full autonomy, which he demonstrated
to the world on “Autonomy Day” in April 2019 with an autonomous Tesla that
drove around Tesla’s headquarters, drove onto the highway, and made seven
24
Walter Isaacson, Elon Musk, 243 (Simon & Schuster, 2023) (“Isaacson”).
– 14 –
difficult turns. While the reception to Autonomy Day was mixed, Isaacson wrote,
“[U]nderneath Musk’s hype and willful fantasy was a vision that he remained
34. In Tesla’s 2019 10-K, filed on February 13, 2020, it began disclosing
We believe that a key factor in our success will be our Autopilot and
FSD technologies that currently enable the driver-assistance features
in our vehicles, and in which we are making significant strides through
our proprietary and powerful FSD computer and remotely updateable
artificial intelligence software. Ultimately, while we are subject to
regulatory constraints over which we have no control, our goal is a
fully autonomously-driven future that improves safety and provides
our customers with convenience and additional income through
participation in an autonomous Tesla ride-hailing network. This
network, which will also include our own fleet of vehicles, will also
allow us to access a new customer base even as modes of transportation
evolve.26
Tesla has continued to tout its plans for an AI-based autonomous ride-hailing
network (which it calls “Robotaxis”). The Airbnb-like service would allow Tesla
owners to operate their vehicles as self-driving taxis when they are not personally
using them, paying upfront or annual fees to the Company to access the Robotaxi
25
Id. at 332–334.
26
– 15 –
35. After a year of disappointing stock performance for Tesla, in April
2023, Musk doubled down on AI as the engine for Tesla’s growth. In an analyst
call, Musk told investors that the Company’s future relied on AI software for
autonomous driving, stating: “We do believe we’re . . . laying the groundwork here,
and that it’s better to ship a large number of cars at a lower margin, and,
subsequently, harvest that margin in the future as we perfect autonomy.” That July,
Musk said, “In the long-term, autonomy is going to just drive [sales] volume
through the ceiling next level. And our Robotaxi products have quasi-infinite
demand.” Investors bought into that vision, with Tesla shares more than doubling
product that makes Tesla a ten-trillion company. People will be talking about this
a section titled “Self-Driving and Artificial Intelligence,” Tesla’s 2022 10-K, filed
on January 31, 2023, stated: “We are also applying our artificial intelligence
learnings from self-driving technology to the field of robotics. For example, in 2022
27
Isaacson. at 503.
– 16 –
system.” The 10-K further stated: “We are increasingly focused on products and
Tesla presented a prototype of Optimus, Tesla’s humanoid robot. Musk said that
Tesla was working to develop Optimus using the technology behind its driverless
cars, telling analysts in January 2024 that the project was “an extremely
revolutionary product and something that I think has the potential to far exceed the
39. Over the last several years, Tesla has been building one of the world’s
largest supercomputers, called “Dojo,” which will be used to process reams of video
data from its vehicles to train AI systems for its cars and for the Optimus robot. In
2024, Tesla will spend $10 billion on AI, including $1 billion on Dojo. “Tesla will
28
Form 10-K at 32 (Jan. 31, 2020), https://www.sec.gov/ix?doc=/Archives/edgar/data/00
01318605/000095017023001409/tsla-20221231.htm.
– 17 –
spend more than that on Nvidia hardware this year,” Musk stated in January 2024.
“The table stakes for being competitive in AI are at least several billion dollars per
Nvidia. In August 2023, Tesla engineer Tim Zaman revealed in a Tweet that Tesla
10,000 Nvidia H100 GPUs and be more powerful than the world’s third highest-
performing supercomputer. “We’ll actually take the hardware as fast as Nvidia will
deliver it to us,” Musk previously said. “If they could deliver us enough GPUs, we
might not need Dojo, but they can’t because they’ve got so many customers.” An
capabilities to train its full self-driving technology faster,” a move that would
41. Musk explained on Tesla’s January 24, 2024 earnings call that the
29
Elon Musk (@elonmusk), X (Jan. 26, 2024 4:39pm), https://x.com/elonmusk/status/
1750997027922567324.
30
Al Root, Tesla’s New Supercomputer Accelerates Its Ambition to Be an AI Play
Alongside Nvidia, BARRON’S (Aug. 29, 2023), https://www.barrons.com/articles/tesla-
nvidia-stock-ai-computer-ev-self-driving-119dc165.
– 18 –
And the technologies that we’re—the AI technologies we developed
for the car translate quite well to a humanoid robot because the car is
just a robot on four wheels. Tesla is arguably already the biggest robot
maker in the world. It’s just a four-wheeled robot. So, Optimus is a
robot with—a humanoid robot with arms and legs. It’s by far the most
sophisticated humanoid robot that’s being developed anywhere in the
world.
long-gestating Robotaxi business, which will rely on Tesla’s AI-based Full Self-
of Tesla vehicles when they are not on the road. “It would seem like a waste not to
use it,” he said, adding that this could become the biggest part of the automaker’s
43. In addition to the statements above, Musk and others at Tesla have
April 26, 2021, earnings call: “[R]ight now people think of Tesla as—
a lot of people think Tesla is a car company, or perhaps an energy
company. I think long term people will think of Tesla as much as an
AI robotics company as we are a car company or an energy company.
I think we are developing one of the strongest hardware and software
AI teams in the world.”
31
Todd Lassa, Would You Loan Out Your Tesla Like an Airbnb? AUTOWEEK (Apr. 24,
2024), https://www.autoweek.com/news/a60593652/elon-musk-tesla-fsd-like-airbnb/.
– 19 –
level, and basically, I think we’re, I think, arguably the leaders in real-
world AI as it applies to real-world.”
October 18, 2022, Tesla AI Day: “We really wanted to show the depth
and breadth of Tesla in artificial intelligence, computer hardware,
robotics actuators, and try to really shift the perception of the company
away from a lot of people think we’re like just a car company or we
make cool cars, whatever, but they don’t have have—most people
have no idea that Tesla is arguably the leader in real world AI
hardware and software and that we’re building what is arguably the
first—the most radical computer architecture since the Cray-1
supercomputer.”
October 19, 2022, earnings call: “Our goal with that AI Day was
recruiting, and we’re seeing a massive influx of world-class artificial
intelligence engineer and scientist resumes. So, it generated a
tremendous amount of interest from some of the best AI researchers in
the world. I can’t emphasize the importance of this enough, because I
think it finally has become clear to the smartest AI technologists in the
world that Tesla is among the very best.”
January 25, 2023, earnings call: “I think something that still a lot of
people out there don’t quite appreciate is that Tesla – of course, I like
Tesla as much a software company as a hardware company, but Tesla
is really one of the world’s leading AI companies. ... [W]e’re seeing
– 20 –
just a lot of world-class AI talent join the company. There’s also the
long-term potential of Optimus, where we’re able to use our expertise
in electric motors and electronics, batteries and advanced
manufacturing to be able to make a humanoid robot that is actually
useful and can be made in high volume with exceptional capabilities
because of the Autopilot AI that where we take the—because the car
is like a robot on four wheels and the Optimus is a robot on legs. But
the—as we get closer and closer to solving real-world AI, and we don't
see anyone even close to us in achieving this. ... [T]his is the thing that
has order of magnitude potential market cap improvement for Tesla.”
March 1, 2023, Tesla Investor Day: “So as we solve real world AI, I
don’t think there’s anyone even close to Tesla on solving real world
AI. That same computer and software goes into Optimus.”
October 18, 2023, earnings call: “We remain focused on three main
objectives, which is the cost reductions of our products, investments in
artificial intelligence and other growth projects like Optimus, and
continued free cash flow generation. ... We’ll continue to invest
significantly in AI development, as this is really the massive game
changer. And I mean, success in this regard in the long term, I think,
has the potential to make Tesla the most valuable company in the world
by far.…The Tesla AI team is, I think, one of the world’s best, and I
think it is actually by far the world’s best when it comes to real-world
AI. I’ll say that again, Tesla has the best real-world AI team on earth,
period, and it’s getting better.”
– 21 –
January 24, 2024, earnings call: “I think Tesla’s probably the most
efficient company in the world for AI inference….I see a path to
creating an artificial intelligence and robotics juggernaut of truly
immense capability and power….[P]eople think of Tesla as a car
company when they should be thinking of Tesla as an AI/robotics
company.”
44. Musk has also repeatedly posted about Tesla’s position as a leading AI
company on X:
– 22 –
– 23 –
B. Musk Attempts to Merge OpenAI and Tesla, Then Resigns From
OpenAI Because Of The Conflict Created By His Simultaneous
Stewardship of Two AI Companies
his recognition that Tesla’s AI efforts and ambitions create a conflict precluding
46. In 2015, Musk, along with other prominent Silicon Valley investors
planned to commit $1 billion to the project long term, with OpenAI set up as a
nonprofit that would “open source” all its research (i.e. share its underlying software
– 24 –
code with the public). In order to attract engineers, Musk unilaterally decided
like OpenAI was within the scope of Tesla’s business ambitions and that Tesla had
the capability to acquire and operate such a business. Musk’s fellow OpenAI
directors, however, rejected his proposal for a merger between OpenAI and Tesla.33
48. With his proposed acquisition blocked, Musk resigned from OpenAI’s
board in February 2018, recognizing the conflict inherent in his dual roles at Tesla
and OpenAI.34 Indeed, by that time, Tesla was already building its own AI project,
Autopilot, and Musk had poached a key OpenAI employee. Sam Altman, OpenAI’s
32
Berber Jin et al., How the Bromance Between Elon Musk and Sam Altman Turned Toxic,
WALL ST. J. (Mar. 6, 2024), https://www.wsj.com/tech/ai/elon-musk-sam-altman-openai-
lawsuit-8e6f1897.
33
See Cade Metz, OpenAI Says Elon Musk Tried to Merge It With Tesla, N.Y. TIMES (Mar.
5, 2024), https://www.nytimes.com/2024/03/05/technology/openai-elon-musk-tesla.html.
34
Cade Metz et al., Elon Musk Ramps Up A.I. Efforts, Even as He Warns of Dangers, N.Y.
TIMES (Apr. 27, 2023), https://www.nytimes.com/2023/04/27/technology/elon-musk-ai-
openai.html.
– 25 –
CEO recalled: “We realized that Tesla was going to become an AI company and
49. Upon Musk’s resignation from the OpenAI board in February 2018,
OpenAI published a blog post stating: “As Tesla continues to become more focused
viewed Tesla as his priority and was prepared to resolve potential conflicts of
interest created by his other business endeavors in favor of Tesla. As Musk’s equity
ownership and voting power in Tesla declined, however, his priorities changed.
35
Isaacson, 244. After OpenAI accepted a major investment from Microsoft, Musk called
AI “the most powerful tool that mankind has ever created” and lamented that it was “now
in the hands of a ruthless corporate monopoly.” Id. at 602.
36
Fred Lambert, Elon Musk leaves Open AI’s board due to potential conflict with Tesla’s
own AI effort, ELECTREK (Feb. 21, 2018), https://electrek.co/2018/02/21/elon-musk-leaves-
open-ai-tesla-ai-effort/.
37
Elon Musk (@elonmusk), X (Feb. 16, 2019 11:27pm), https://x.com/elonmusk/
status/1096989482094518273.
– 26 –
52. As of 2018, Musk directly held approximately 21% of Tesla’s stock
and voting power. During 2021 and 2022, however, Musk sold more than $39
billion worth of his Tesla shares to cover taxes and help fund his purchase of
Twitter. As a result, his direct holdings in Tesla (excluding options) fell to 13%.
affected his commitment to develop AI products inside of Tesla. Musk made this
clear on January 15, 2024, when he made the following remarkable post on X:
corporate opportunities away from Tesla unless Tesla gave him substantial
55. A Wall Street Journal columnist stated, “In essence, he wants to get
paid a second time for AI promises that he’s been selling to Tesla investors for years
– 27 –
and that are already embodied in its share price. . . . [H]e wants to be compensated
all over again for the magic beans he has yet to deliver.” 38
Jonas attributed 22% of his price target for Tesla’s stock to the future value created
by an autonomous car fleet of about 220,000 vehicles by 2030. But after Musk’s
comment on X, he pulled back his expectations, stating, “Tesla is the only truly AI-
enabling stock under our coverage. Any change of organizational or legal structure
software and AI capabilities are key to the “long-term bull thesis” for the
company.40
38
Holman W. Jenkins, Jr., Lovable Elon Pulls a Fast One, WALL ST. J. (Jan. 19, 2024),
https://www.wsj.com/articles/lovable-elon-pulls-a-fast-one-compensation-artificial-
intelligence-x-post-bec08f67.
39
Tim Higgins, Tesla Was Once About Climate Change, Driverless Cars, AI. Now What?,
WALL ST. J. (Feb. 10, 2024), https://www.wsj.com/business/autos/tesla-has-long-been-a-
hope-stock-but-what-are-investors-hoping-for-now-7031171f.
40
Alan Ohnsman, Elon Musk’s Plan to Tout Tesla AI Comes As Tougher Scrutiny of the
Company Looms, FORBES (Aug. 18, 2021),
https://www.forbes.com/sites/alanohnsman/2021/08/18/elon-musks-plan-to-tout-tesla-ai-
comes-as-tougher-scrutiny-of-the-company-looms/.
– 28 –
57. The post irked several longstanding Tesla investors, including the
company’s largest retail shareholder, Leo Koguan, and investment manager Ross
In the days following the tweet, Tesla’s stock price fell approximately 3%.
58. Musk’s January 2024 post on X was not an idle threat. By the time of
that post, consistent with his newfound discomfort with “growing Tesla to be a
leader in AI,” Musk had already founded a new startup AI company that would
enable him to “build [AI] products outside of Tesla.” Specifically, in March 2023,
59. Musk admitted he was inspired to establish that venture shortly after
products, which set the stage for a two-way “competition between OpenAI-
41
Lora Kolodny, Elon Musk ordered Nvidia to ship thousands of AI chips reserved to X
and xAI, CNBC (Jun. 4, 2024), https://www.cnbc.com/2024/06/04/elon-musk-told-nvidia-
to-ship-ai-chips-reserved-for-tesla-to-x-xai.html.
42
Madhumita Murgia et al., Elon Musk Plans Artificial Intelligence Start-Up to Rival
OpenAI, FIN. TIMES (Apr. 14, 2023), https://www.ft.com/content/2a96995b-c799-4281-
8b60-b235e84aefe4.
– 29 –
Microsoft and DeepMind-Google to create products that could chat with humans in
60. That worried Musk. He did not trust Microsoft and Google to nurture
products free of “political[] indoctrinat[ion]” and infection from the “woke mind
virus.”44 He also worried that “self-learning AI systems might turn hostile to the
and Google needed . . . a third gladiator, one that would focus on AI safety and
61. That xAI was founded as a direct response to OpenAI’s success, and
with the express intent of competing with OpenAI, was significant. Musk had
43
Isaacson at 601.
44
Id.
45
Id.
46
Id.
47
Musk quoted in Isaacson, at 604–05.
– 30 –
previously recognized that his simultaneous service at the helm of Tesla and
OpenAI clone notwithstanding his duties to Tesla. What changed? Musk’s January
2024 post on X resolves any mystery: based on his own unique personal interests,
62. At the time of its founding, Musk was xAI’s CEO and sole initial
“frenzy” made recruiting a challenge and, according to Musk, “[i]t w[ould] be easier
to get [AI engineers] if they c[ould] become founders of a new company and get
equity in it.”49 According to the Financial Times, Musk had already secured
thousands of high-powered GPU processors from Nvidia that were required to build
48
Madhumita Murgia et al., Elon Musk Plans Artificial Intelligence Start-Up to Rival
OpenAI, FIN. TIMES (Apr. 14, 2023), https://www.ft.com/content/2a96995b-c799-4281-8b
60-b235e84aefe4. By that point he was now running six companies simultaneously—
“three times as many as Steve Jobs (Apple, Pixar) at his peak,” per Isaacson. Isaacson at
605.
49
Isaacson at 605.
– 31 –
out AI capabilities and intended to “tap Tesla for computing resources.” 50 Musk
also publicly confirmed that both X and Tesla were also buying GPU processors. 51
Nvidia’s processors are generally in short supply and companies compete fiercely
to secure deliveries.52 Thus, from even before its inception, xAI (and X) has been
63. Musk knew that “he was starting off way behind OpenAI in creating a
work on self-driving cars and Optimus the robot put it way ahead in creating the
type of AI needed to navigate in the physical world. This meant that his engineers
xAI’s—yet Musk treated them as one and the same. On information and belief, xAI
is using both Tesla’s engineering and data to bridge the gap with its competitors.
50
Madhumita Murgia et al., Elon Musk Plans Artificial Intelligence Start-Up to Rival
OpenAI, FIN. TIMES (Apr. 14, 2023), https://www.ft.com/content/2a96995b-c799-4281-8b
60-b235e84aefe4.
51
Id.
52
Paresh Dave, Nvidia Chip Shortages Leave AI Startups Scrambling for Computing
Power, WIRED (Aug. 24, 2023), https://www.wired.com/story/nvidia-chip-shortages-
leave-ai-startups-scrambling-for-computing-power/.
53
Isaacson at 605.
– 32 –
Had Musk not improperly diverted Tesla resources to xAI, it would have taken years
64. Development of AI depends on data, and Musk has two sources of data
at his disposal—X and Tesla.54 Tesla’s “data trove” was “160 billion frames per
day of video that Tesla received and processed from the cameras on its cars. This
data was different from the text-based documents that informed chatbots. It was
65. Tesla’s AI technology and related data were uniquely valuable and
distinguished it from its competitors. Indeed, “[t]he holy grail of artificial general
intelligence was building machines that could operate like humans in physical
spaces, such as factories and offices and on the surface of Mars, not just wow us
with disembodied chatting. Tesla and Twitter together could provide the data sets
and the processing capability for both approaches: teaching machines to navigate in
54
Id. at 602.
55
Id. at 603.
56
Id.
– 33 –
66. “Tesla’s real-world AI is underrated,” Musk told Isaacson. “Imagine
if Tesla and OpenAI had to swap tasks. They would have to make Self-Driving,
and we would have to make large language-model chatbots. Who wins? We do.”57
67. Musk publicly launched xAI in July 2023 with eleven engineers under
his leadership.58 Musk poached one, Ross Nordeen, directly from Tesla, where he
division.59 At the time, Musk stated xAI’s “current legal department is 0.” 60
68. According to its initial website, xAI had the purported mission “to
understand the true nature of the universe” and would work closely with both Tesla
57
Id. at 605.
58
Anirban Ghoshal, Elon Musk Launches xAI to Take on ChatGPT-maker OpenAI,
COMPUTERWORLD (July 13, 2023), https://www.computerworld.com/article/1631425/
elon-musk-launches-xai-to-take-on-chatgpt-maker-openai.html.
59
Sissi Cao, Elon Musk Announces xAI: Who’s On the 12-Man Founding Team?,
OBSERVER (July 12, 2023), https://observer.com/2023/07/elon-musk-launches-xai/ It was
not the first time Musk ransacked Telsa for engineering talent. He detailed more than fifty
Tesla engineers from the assisted driving program to Twitter soon after he acquired it in
2022. Victor Tangermann, Elon Musk Pulling Engineers From Tesla Autopilot to Work
on Twitter, FUTURISM (Nov. 1, 2022), https://futurism.com/elon-musk-engineers-tesla-
autopilot-twitter; Tornetta, 310 A.3d at 506. “Similarly, in 2020, Musk directed Tesla
management to send Tesla’s ‘smartest micro grid designer [ ] with a bunch of Powerpacks
to [SpaceX][.]’” Id. (alterations in original).
60
Ben Schreckinger, Elon Musk’s Liberal-Trolling AI Plan Has a Core Audience,
POLITICO (July 17, 2023), https://www.politico.com/news/2023/07/17/ai-musk-chatgpt-
xai-00106672.
– 34 –
and X.61 xAI’s current website states that it is “working on building artificial
69. In November 2023, xAI launched Grok, its first generative AI chatbot
and offered it to certain X users.63 Around the same time, Musk announced that X
61
Anirban Ghoshal, Elon Musk Launches xAI to Take on ChatGPT-maker OpenAI,
COMPUTERWORLD (July 13, 2023), https://www.computerworld.com/article/1631425/
elon-musk-launches-xai-to-take-on-chatgpt-maker-openai.html.
62
X.ai, https://x.ai/about.
63
Paul Hill, Elon Musk Gives a Glimpse at xAI’s Grok Chatbot, NEOWIN (Nov. 4, 2023),
https://www.neowin.net/news/elon-musk-gives-a-glimpse-at-xais-grok-chatbot/.
– 35 –
H100 GPUs originally slated for Tesla to X instead …. In exchange, original X
orders of 12k H100 slated for Jan and June to be redirected to Tesla.” 64
72. As CNBC later explained, “By ordering Nvidia to let privately held X
jump the line ahead of Tesla, Musk pushed back the automaker’s receipt of more
than $500 million in graphics processing units, or GPUs, by months, likely adding
autonomous vehicles and humanoid robots.”65 A former Tesla supply chain analyst
told CNBC that the redirected shipment was “extreme, given the scarcity of
following the publication of the CNBC report that, contrary to his prior public
representations about Tesla’s appetite for Nvidia hardware, “Tesla had no place to
send the Nvidia chips to turn them on, so they would have just sat in a warehouse.” 67
73. All the while, despite xAI’s December 5, 2023 disclosure in an SEC
filing that it had already raised $135 million from investors and was seeking to raise
64
Lora Kolodny, Elon Musk Ordered Nvidia to Ship Thousands of AI Chips Reserved for
Tesla to X and xAI, CNBC (June 4, 2024), https://www.cnbc.com/2024/06/04/elon-musk-
told-nvidia-to-ship-ai-chips-reserved-for-tesla-to-x-xai.html.
65
Id.
66
Id.
67
Elon Musk (@elonmusk), X (June 4, 2024 11:03am), https://x.com/elonmusk/status/
1798007748728365503.
– 36 –
a total of $1 billion,68 Musk claimed the next day that xAI was not raising money
“right now”:
OpenAI co-founder Ilya Suskever had become “invisible at the company, with his
68
X.ai Corp., Notice of Exempt Offering of Securities (Form D) (Dec. 5, 2023),
https://www.sec.gov/Archives/edgar/data/2002695/000200269523000002/xslFormDX01/
primary_doc.xml.
– 37 –
future uncertain,” and suggested that he “come work at Tesla,” Musk replied, “Or
69
Elon Musk (@elonmusk), X (Dec. 9, 2023 4:19am), https://x.com/elonmusk/status/
1733416090439451114.
– 38 –
– 39 –
75. On January 6, 2024, in response to news reports, Musk again publicly
proclaimed that “xAI is not raising capital and I have had no conversations with
E. After This Court Rescinds Musk’s Pay Package and Reduces His
Stake in Tesla, Musk Accelerates the Growth of xAI, Raising Billions
of Dollars and Poaching at Least Eleven Employees From Tesla
76. On January 30, 2024, the Court of Chancery issued a post-trial opinion
in Tornetta v. Musk, in which it held that Musk’s 2018 compensation package was
unfair to Tesla and ordered that it be rescinded.71 Without the rescinded options,
approximately 13%. Musk, therefore, no longer had close to the voting power over
AI leader. After the Tornetta ruling, Musk accelerated his efforts to grow xAI.
77. In March 2024, Musk began discussions with the City of Memphis to
build a supercomputer there to support xAI’s operations.72 Later that month, xAI
70
Elon Musk (@elonmusk), X (Jan. 26, 2024 4:33pm), https://x.com/elonmusk/status/
1750995501560807465.
71
310 A.3d at 445.
72
Meghan Bobrowsky & Berber Jin, Elon Musk’s xAI Plans to Build Supercomputer in
Memphis, WALL ST. J. (June 5, 2024), https://www.wsj.com/tech/ai/elon-musks-xai-plans-
to-build-supercomputer-in-memphis-ecee78fb.
– 40 –
context understanding and advanced reasoning.73 On April 12, 2024, xAI
78. Meanwhile, xAI pillaged talent from Tesla. xAI currently has at least
eleven employees who joined directly from Tesla. The most significant—Ethan
Knight, who led Tesla’s computer vision team—was hired in March 2024, when he
became the “third Tesla engineer to leave the car company for xAI, the startup’s
website shows.”75 Musk claimed that “Ethan was going to join OpenAI … so it
was either xAI or them.”76 But he did not explain why Tesla could not persuade
Knight to stay, or why xAI was not a part of Tesla to begin with. When noted “reply
guy” Sawyer Merritt referred to Knight as Tesla’s “computer vision chief,” Musk
was determined to diminish the import of the move, posting that “Ethan is very
talented, but ‘vision chief’ would be overstating things.”77 Shortly after that
73
X.ai, https://x.ai/blog/grok-1.5.
74
X.ai, https://x.ai/blog/grok-1.5v.
75
Becky Peterson, Musk’s xAI is Poaching Engineers From Tesla, THE INFORMATION
(Apr. 3, 2024), https://www.theinformation.com/articles/musks-xai-is-poaching-
engineers-from-tesla.
76
Noor Al-Sibai, Elon Musk is Poaching Tesla Engineers for XAI. Wait, What?, FUTURISM
(Apr. 5, 2024), https://futurism.com/the-byte/elon-musk-poaching-tesla-xai.
77
Elon Musk (@elonmusk), X (Apr. 3, 2024 6:00pm), https://x.com/elonmusk/status/
1775644544853221599.
– 41 –
episode, in an apparent effort to obscure the extent to which Tesla AI employees
were being diverted to xAI, xAI dropped the section of its website listing its
technical employees.
79. On Tesla’s Q1 2024 earnings call, held April 23, 2024, Musk told
investors that Tesla planned to increase the number of active Nvidia H100S GPUs
from 35,000 to 85,000, and posted on X that Tesla would spend $10 billion through
2024 on “combined training and inference AI.”78 But an internal Nvidia email
observed that Musk’s earnings-call comment “conflicts with bookings,” and that his
80. On May 18, 2024, Musk again threatened Tesla and its stockholders
by confirming that he would only build an AI and robotics business within Tesla if
78
Tesla, Q1 2024 Earnings Call Transcript, https://www.fool.com/earnings/call-
transcripts/2024/04/23/tesla-tsla-q1-2024-earnings-call-transcript/.
79
Lora Kolodny, Elon Musk Ordered Nvidia to Ship Thousands of AI Chips Reserved for
Tesla to X and xAI, CNBC (June 4, 2024), https://www.cnbc.com/2024/06/04/elon-musk-
told-nvidia-to-ship-ai-chips-reserved-for-tesla-to-x-xai.html.
– 42 –
81. This post also confirmed that Tesla has the capability to operate an AI
business, that AI and robotics ventures are within Tesla’s line of business, and that
round that valued xAI at $24 billion.80 Investors included, among others, Valor
80
Eric Revell, Elon Musk’s xAI Gets $6B in New Funding and Announces Valuation,
FOXBUSINESS (May 27, 2024), https://www.foxbusiness.com/technology/elon-musks-xai-
gets-6-billion-new-funding-announces-valuation.
– 43 –
Equity Partners, Vy Capital, Andreesen Horowitz, Sequoia Capital, Fidelity
Management & Research Company, Prince Alwaleed Bin Talal, and Kingdom
Holding.81 Musk himself personally invested $750 million and X invested $250
Musk-controlled X for its in-kind contributions, on information and belief, xAI has
not provided Tesla any equity for its own significant contributions to the company.
83. Reflecting the immense investment interest in both the AI industry and
in Musk himself, Musk and xAI originally aimed to raise only $3 billion in this
financing round at a targeted $18 billion valuation.83 But “strong demand” allowed
84. A pitch deck to potential investors in the Series B round stated that xAI
intended to harvest data from X and Tesla to help xAI catch up to AI companies
81
X.ai, https://x.ai/blog/series-b. Notably, many of these same investors—including Vy
Capital, Andreesen Horowitz, Sequoia Capital, Fidelity, and Prince Alwaleed Bin Talal—
were also investors in Musk’s ill-fated acquisition of Twitter in 2022. Offering them the
opportunity to invest in xAI helped make up for the losses from Twitter.
82
Berber Jin et al., Elon Musk’s xAI Valued at $24 Billion After Latest Fundraising Round,
WALL ST. J (May 27, 2024), https://www.wsj.com/tech/ai/elon-musks-xai-will-raise-6-
billion-in-latest-fundraising-round-fcdd722d?mod=article_inline.
83
Id.
84
Id.
– 44 –
OpenAI and Anthropic.85 X would provide data from social media users, and Tesla
would provide video data from its cars.86 As discussed herein, Musk has repeatedly
lauded the value of the base data set of information currently owned by Tesla for
AI products.
85. It is apparent that Musk has pitched prospective investors in xAI partly
already or intends to have xAI harvest data from Tesla without appropriately
compensating Tesla even though X has already been provided xAI equity for its
data contributions. None of this would be necessary if Musk properly created xAI
as a subsidiary of Tesla.
86. In its announcement of the Series B funding, xAI made clear that it
xAI will continue on this steep trajectory of progress over the coming
months, with multiple exciting technology updates and products soon
to be announced. The funds from the round will be used to take xAI’s
first products to market, build advanced infrastructure, and accelerate
the research and development of future technologies.
85
Kia Kokalitcheva, Elon’s AI Venture Being Sold as Part of a “Muskonomy,” AXIOS
(May 18, 2024), https://www.axios.com/2024/05/18/elon-musk-xai-fundraising.
86
Id.
– 45 –
xAI is hiring for numerous roles and seeks talented individuals ready
to join a small team focused on making a meaningful impact on the
future of humanity. Those interested can apply today at x.ai/careers.87
87. Investors in the funding round were aware that xAI was currently
behind its rivals and would have to spend billions of dollars on chips and
infrastructure to catch up, further indicating that xAI will continue to raise money
and grow.88
88. xAI moved quickly to begin deploying its new capital. In June 2024,
F. The Board Permits Musk to Create and Grow xAI, Hindering Tesla’s
AI Development Efforts and Diverting Billions of Dollars in Value
from Tesla to xAI
89. The Tesla Board has done nothing as Musk has diverted value,
personnel, data, and resources from Tesla to xAI. The Board’s failure to act
87
X.ai, https://x.ai/blog/series-b.
88
George Hammond & Tabby Kinder, Elon Musk’s xAI Secures New Backing From
Andreesen, Lightspeed, Sequoia and Tribe, FIN. TIMES (May 23, 2024), https://www.ft
.com/content/0b6f634e-dbf0-4238-a319-1dc1bbc0b62e.
89
Meghan Bobrowsky & Berber Jin, Elon Musk’s xAI Plans to Build Supercomputer in
Memphis, WALL ST. J. (June 5, 2024), https://www.wsj.com/tech/ai/elon-musks-xai-plans-
to-build-supercomputer-in-memphis-ecee78fb.
– 46 –
constitutes an obvious breach of its members’ unyielding fiduciary duty to protect
creating and leading xAI, and the Board has allowed Musk to continue to violate
this Code unimpeded. Musk’s actions with respect to xAI run afoul of multiple
examples of conflicts of interest that Tesla’s own Code of Business Ethics provides,
that relate to existing or future Tesla products or your job at Tesla;” and “having a
91. And by doing so, Musk is diverting enormous value away from Tesla.
At an implied $24 billion valuation, xAI is the second most valuable AI company,
behind only OpenAI, which arguably pioneered the industry with its now-famous
ChatGPT platform.
90
Tesla, Code of Business Ethics at 6 (available at https://digitalassets.tesla.com/tesla-
contents/image/upload/IR/business-code-of-ethics).
– 47 –
92. Musk is creating enormous value at xAI—potentially worth hundreds
of billions of dollars in the near future—at Tesla’s expense. At this pace, xAI’s
OpenAI’s early success, its value could be substantially higher still. OpenAI is now
valued at approximately $80 billion, despite the nascency of the company and the
that he has “never seen anything grow faster than AI. Not even close.” 91
xAI to exist within Tesla. Because Tesla is the “biggest AI project on earth” and
directly for what can be viewed as the raw materials of AI development: GPUs and
human talent.
94. These basic AI resources are as vital as they are scarce, and the conflict
between Tesla and xAI in this regard is apparent. Tesla, for example, is building an
extension to its Texas factory that will house 50,000 Nvidia GPUs to develop
Tesla’s “full self-driving” software,”92 while xAI is building its own supercomputer
91
Elon Musk (@elonmusk), X (Jan. 4, 2024 1:56pm), https://x.com/elonmusk/status/
1742983369296916762.
92
Elon Musk (@elonmusk), X (June 4, 2024 11:03am), https://x.com/elonmusk/status/
1798007748728365503.
– 48 –
developing AI models—building large computing centers using GPUs that can
process vast amounts of data—places Tesla and xAI in direct competition with one
another.
substantial resources and personnel from Tesla to xAI, in part because xAI is far
behind in the AI arms race. In the most blatant example of Musk shuffling resources
96. Thus, Musk abused his control over Tesla to jump his personally
favored AI company, xAI, ahead of Tesla in the ever-growing queue for skilled AI
engineers and Nvidia’s vital GPUs. Given the immense competitive pressure Tesla
currently faces and Musk’s own admissions that AI is critical to Tesla’s future,
Musk’s decision to put xAI ahead of Tesla’s AI efforts is simply inexcusable for
any fiduciary—let alone the fiduciary that controls Tesla. And this conduct reflects
equally poorly upon the rest of the Tesla Board, that has done nothing to manage
this conflict or to prevent Musk from unfairly favoring xAI’s interests over Tesla’s.
97. For his part, Musk has publicly admitted that he did indeed divert these
GPUs from Tesla. In a post on X on June 4, 2024, Musk explained his decision by
writing: “Tesla had no place to send the Nvidia chips to turn them on, so they would
– 49 –
have just sat in a warehouse.”93 Musk’s explanation makes little sense. As an initial
matter, this controversy could not have surfaced at a worse time for Musk, with
CNBC’s reporting becoming public only days before Tesla stockholders vote on
his misconduct, Musk’s explanation makes little sense. Amidst great competitive
pressure and falling profits, why would Tesla order Nvidia’s expensive and highly
sought-after GPUs if it had no use for them? And more importantly, why was
make use of these GPUs, while X and xAI were ready to take delivery immediately?
Considering that Tesla has been developing autonomous technology for its cars for
years, while xAI was founded only months before Musk diverted GPUs from Tesla
from Tesla to X and xAI. Moreover, even if Tesla itself could not use the chips
immediately, it could have stored these valuable assets until it could use them.
93
Elon Musk (@elonmusk), X (June 4, 2024 11:03am), https://x.com/elonmusk/status/
1798007748728365503.
– 50 –
99. Tesla’s Board members who have allowed this blatant conflict to fester
unsupervised for months have also sought to downplay the controversy. Even
though Musk publicly admitted that he diverted the GPU shipment from Tesla to
xAI, Denholm insisted that the claim was “just not true.” 94 Denholm stated that
Tesla is building a new data center that is due to come online in August 2024, and
that Tesla adjusted its purchase order with Nvidia to “line up with the data center
decision. And most tellingly, when asked to provide a “good example of something
where Elon wanted to do something and you said no,” Denholm could not identify
a single specific example.97 Rather, Denholm simply replied that Musk and the
oversee him.
94
Form DEFA14A (June 6, 2024), https://www.sec.gov/Archives/edgar/data/1318605
/000110465924069150/tm2413800d21_defa14a.htm.
95
Id.
96
Tornetta, 310 A.3d at 509.
97
Form DEFA14A (June 6, 2024), https://www.sec.gov/Archives/edgar/data/1318605/
000110465924069150/tm2413800d21_defa14a.htm.
98
Id.
– 51 –
100. The Board has freely allowed Musk—the CEO and largest stockholder
resources from Tesla and divert them to X and xAI; and to create billions in AI-
related value at a company other than Tesla. Worst of all, the Board has allowed
Musk to do this in the face of Musk’s overt threat to develop AI products outside
Tesla if he is not given a 25% stake in the Company. Musk has made abundantly
clear that he is willing to develop AI products outside Tesla, and is now making
good on that threat. The conflicted Board has failed in its fiduciary duty to prevent
DERIVATIVE ALLEGATIONS
Tesla common stock and have continuously owned Tesla common stock at all
relevant times.
102. Plaintiffs will adequately and fairly represent the interests of Tesla in
enforcing and prosecuting its rights and have retained counsel competent and
– 52 –
DEMAND IS EXCUSED AS FUTILE
103. Plaintiffs did not make a demand on the Board to bring suit asserting
the claims set forth herein because pre-suit demand is excused as a matter of law.
104. Demand is excused as futile with respect to a director who: (1) received
a material personal benefit from the alleged misconduct that is the subject of the
liability on any of the claims that would be the subject of the litigation demand
(“Zuckerberg Prong 2”); or (3) lacks independence from someone who received a
material personal benefit from the alleged misconduct that would be the subject of
the litigation demand or who would face a substantial likelihood of liability on any
of the claims that are the subject of the litigation demand (“Zuckerberg Prong 3”).99
99
United Food and Commercial Workers v. Zuckerberg, 262A.3d 1034, 1059 (Del. 2021).
– 53 –
least $750 million100 in a key Tesla AI competitor and has diverted and continues
to divert valuable talent and resources from Tesla to that competitor. Musk is xAI’s
founder and leader. Although the exact value and nature of Musk’s stake in xAI is
not publicly available, Musk certainly has voting and managerial control over xAI
and likely has a majority economic stake. Musk’s misconduct has enhanced and
will continue to enhance the value of his material personal stake in xAI.
misconduct.
fiduciary duties as Tesla’s controlling stockholder and as a Tesla officer and director
by creating a startup that competes directly with Tesla and diverting billions of
dollars of value in the form of talent and resources from Tesla to that startup. In
Tornetta, the Court determined that, at Tesla, Musk “held some of the most
influential corporate positions (CEO, Chair, and founder), enjoyed thick ties with
100
Berber Jim, Meghan Bobrowsky, Kimberley Kao, Elon Musk’s xAI Valued at $24
Billion After Latest Fundraising Round, WALL ST. J. (May 27, 2024),
https://www.wsj.com/tech/ai/elon-musks-xai-will-raise-6-billion-in-latest-fundraising-
round-fcdd722d.
– 54 –
the directors tasked with negotiating on behalf of Tesla, . . . dominated the process
that led to board approval of his compensation plan[, and that a]t least as to [Musk’s
that Musk also controls Tesla both generally and with respect to the diversion of
Tesla’s value to xAI and X, as he alone has made decisions to redirect talent,
resources, and valuable GPUs to those competitors. Musk’s disloyal actions have
harmed and continue to harm Tesla and are a breach of the duties he owes as Tesla’s
Demand Board excluding Musk) also faces a substantial likelihood of liability for
is its largest stockholder, serves as its Technoking and CEO, and is a director on
Tesla’s Board. Throughout the entire period that Musk set up and favored xAI,
101
Tornetta, 310 A.3d at 446 (emphasis added).
102
Id.
– 55 –
Musk led Tesla’s management team. As discussed supra, Musk also founded xAI
112. Musk’s Superstar CEO status has created a “distortion field” that
interfered and continues to interfere with the Board’s oversight and imperiled and
have done nothing to respond to the existential threat xAI poses to Tesla, even as
Musk has diverted billions of dollars in value in the form of talent and resources
113. In fact, Musk’s “distortion field” is so powerful that its impacts extend
beyond the financial and well into intimate aspects of Board members’ personal
lives. The “distortion field” permeates the Board so thoroughly that its members
feel pressured to take drugs with Musk. The Wall Street Journal reports that:
In the culture Musk has created around him, some friends, including
directors, feel there is an expectation to consume drugs with him
because they think refraining could upset the billionaire, who has made
them a lot of money, some of the people said. More so, they don’t
want to risk losing the social capital that comes from being close to
Musk, which for some feels akin to having proximity to a king. 104
103
Id. at 507.
104
Kirsten Grind, Emily Glazer, Rebecca Elliott, Coulter Jones, The Money and Drugs
That Tie Elon Musk to Some Tesla Directors, WALL ST. J. (Feb. 3, 2024),
https://www.wsj.com/tech/elon-musk-tesla-money-drugs-board-61af9ac4 (emphasis
added).
– 56 –
114. A board that feels peer pressure to take drugs with a controller cannot
115. For these reasons, demand is excused as futile as to each of the Director
liability for breaching their fiduciary duty of loyalty by allowing Musk to divert
value from Tesla to xAI and X without doing anything about it.
each of the Director Defendants (constituting the entirety of the Demand Board
excluding Musk) lacks independence from Musk, who received a material personal
benefit from the alleged misconduct that would be the subject of the litigation
demand and who faces a substantial likelihood of liability on the claims that would
Court has already concluded in Tornetta that Kimbal “lacked independence from
independence from Musk, recused himself from discussion of or voting on the stock
grant at issue in Tornetta.106 What’s more, the Wall Street Journal has reported that
105
Tornetta, 310 A.3d at 510.
106
Id. at 508 n.636.
– 57 –
Kimbal has “consumed drugs with [Musk], according to people who have witnessed
the drug use and others with knowledge of it.” 107 On information and belief, Kimbal
118. The Court’s prior conclusion, the familial relationship between Kimbal
and Musk, Kimbal’s prior recusal, and Kimbal’s consumption of drugs with Musk
support the conclusion that Kimbal has a deep relationship with his brother, is
Court has already concluded in Tornetta that “Murdoch lacked independence due
to [his] personal connection with Musk. He was a long-time friend of Musk before
he joined the Board and they repeatedly vacationed together with their respective
families. It was during one such trip that Musk, Kimbal, and [former Board member
Antonio Gracias] recruited Murdoch to the Board.” 108 The nature and depth of
Murdoch’s social relationship with Musk suggests that Murdoch feels pressure to
take drugs with Musk. On information and belief, Murdoch has done nothing to
107
Kirsten Grind, Emily Glazer, Rebecca Elliott, Coulter Jones, The Money and Drugs
That Tie Elon Musk to Some Tesla Directors, WALL ST. J. (Feb. 3, 2024),
https://www.wsj.com/tech/elon-musk-tesla-money-drugs-board-61af9ac4.
108
Tornetta, 310 A.3d at 510.
– 58 –
120. What’s more, Murdoch has received millions of dollars in
compensation for his service on the Board. He received over $1.9 million for his
2017 service109 and over $9 million for his 2018 service.110 Outsized director
directors . . . far more than the average compensation for boards at most U.S.
average total compensation for board members in the largest 200 U.S. companies,
Musk prior to Murdoch’s appointment to the Board, and the repeated family
vacations support the conclusion that Murdoch has a deep relationship with Musk,
109
Form DEF 14A at 43, (April 26, 2018), https://www.sec.gov/Archives/edgar/data/131
8605/000156459018009339/tsla-def14a_20180606.htm.
110
Form DEF 14A at 66, (April 30, 2019), https://www.sec.gov/Archives/edgar/data/131
8605/000156459019014268/tsla-def14a_20190611.htm.
111
Tornetta, 310 A.3d at 509-10.
112
Kirsten Grind, Emily Glazer, Rebecca Elliott, Coulter Jones, The Money and Drugs
That Tie Elon Musk to Some Tesla Directors, WALL ST. J. (Feb. 3, 2024),
https://www.wsj.com/tech/elon-musk-tesla-money-drugs-board-61af9ac4.
113
Id.
– 59 –
122. Ehrenpreis is incapable of considering a demand against Musk.
Ehrenpreis’s financial life is intertwined with Musk’s. Ehrenpreis and the venture-
capital firm he founded and of which he is managing partner have invested tens of
role as a Tesla director was “a real benefit in fundraising” for his funds. 115
independence.116 Tesla “pays its directors . . . far more than the average
compensation for boards at most U.S. companies.” 117 Ehrenpreis was granted
865,790 Tesla options during part of his tenure on the Board and, in 2021, netted
over $200 million by exercising less than a quarter of those options.118 This
114
Tornetta, 310 A.3d at 455; Kirsten Grind, Emily Glazer, Rebecca Elliott, Coulter Jones,
The Money and Drugs That Tie Elon Musk to Some Tesla Directors, WALL ST. J. (Feb. 3,
2024), https://www.wsj.com/tech/elon-musk-tesla-money-drugs-board-61af9ac4.
115
Tornetta, 310 A.3d at 455.
116
Id. at 509–10.
117
Kirsten Grind, Emily Glazer, Rebecca Elliott, Coulter Jones, The Money and Drugs
That Tie Elon Musk to Some Tesla Directors, WALL ST. J. (Feb. 3, 2024),
https://www.wsj.com/tech/elon-musk-tesla-money-drugs-board-61af9ac4.
118
Tornetta, 310 A.3d at 455.
– 60 –
compensation vastly outstrips the average total compensation for board members in
the largest 200 U.S. companies, which, in 2023, was $329,352[.]” 119
124. Ehrenpreis further has a significant social relationship with Musk. He,
Musk, and Kimbal have known each other for over fifteen years, and, as Ehrenpreis
has acknowledged, “his personal and professional relationship with the Musk
Ehrenpreis and Musk’s brother Kimbal have known each other since at least
Ehrenpreis has done nothing to address Musk’s recreational use of illicit substances.
125. The Court has already concluded that Ehrenpreis’ relationship with
Musk was “weighty,” and, in the context of Ehrenpreis’ role as Chair of the
Compensation Committee with respect to the stock grant at issue in Tornetta, that
it was “too weighty.”123 Ehrenpreis’ relationship with Musk is, with respect to the
119
Kirsten Grind, Emily Glazer, Rebecca Elliott, Coulter Jones, The Money and Drugs
That Tie Elon Musk to Some Tesla Directors, WALL ST. J. (Feb. 3, 2024),
https://www.wsj.com/tech/elon-musk-tesla-money-drugs-board-61af9ac4.
120
Tornetta, 310 A.3d at 455.
121
Id.
122
Id.
123
Id. at 509.
– 61 –
wholesale diversion of billions of dollars of value from Tesla to xAI, again, “too
Ehrenpreis has a deep relationship with Musk, is beholden to him, and is incapable
her work at Tesla and is beholden to Musk, as Tesla’s controller, for this “life-
changing” amount of wealth.124 On information and belief, Denholm has also done
occasions [at which d]irectors sometimes ask softball questions of Musk, such as
future Tesla product colors.”125 Denholm’s soft touch is unsurprising; Musk has
said that he “handpicked” her and that the idea that “Denholm would watch over
124
Id.
125
Kirsten Grind, Emily Glazer, Rebecca Elliott, Coulter Jones, The Money and Drugs
That Tie Elon Musk to Some Tesla Directors, WALL ST. J. (Feb. 3, 2024),
https://www.wsj.com/tech/elon-musk-tesla-money-drugs-board-61af9ac4.
126
Id.
– 62 –
128. Since Musk anointed her to the Tesla Board in 2018, Denholm has
and exercise of Tesla stock options. In 2021 and 2022 alone, for example, Denholm
realized some $280 million by exercising just a fraction of the Tesla options she had
received as compensation.127 This year, she already has received more than $50
million by selling stock she was granted as a Tesla director. 128 Denholm’s Tesla
compensation far exceeded the compensation she received from other sources. 129 It
is therefore no surprise that Denholm herself described the compensation she has
129. Denholm’s lack of independence from Musk is made all the more
apparent by her conduct following the Court’s decision in Tornetta. Since Tornetta
reanimate the compensation plan that the Board originally awarded Musk in 2018.
127
Tornetta, 309 A.3d at 457.
128
Lora Kolodny, Tesla Chairwoman Robyn Denholm has sold over $50 million worth of
stock in 2024, CNBC (May 7, 2024), https://www.cnbc.com/2024/05/07/tesla-chair-robyn-
denholm-sold-over-50-million-in-stock-this-year.html.
129
Tornetta, 309 A.3d at 457.
130
Id. at 509.
131
Id. at 509–10.
– 63 –
Immediately after Tornetta was issued, Musk tweeted: “Never incorporate your
company in the state of Delaware.”132 Musk’s rationale was plain: he was infuriated
by the Court’s decision and the loss of his $56 billion pay package, and wished that
Tesla was incorporated in a state that takes a much more lax approach to fiduciary
130. Soon after Musk’s tweet, Tesla announced that it would hold a
Delaware’s governance norms. Denholm has led the public relations campaign to
make Musk’s dream a reality and to reinstate his $56 billion in compensation. In a
letter to stockholders issued with Tesla’s April 13, 2024 Proxy statement, Denholm
declared that the Court “struck down one of your votes and rescinded the pay
package that an overwhelming majority of you voted to grant to our CEO, Elon
disinterested shares that were actually voted at the 2018 meeting were voted in favor
132
Elon Musk (@elonmusk), X (Jan. 30, 2024 5:14pm), https://x.com/elonmusk/status/
1752455348106166598.
133
Form DEF 14A at 14 (April 29, 2024), https://www.sec.gov/ix?doc=/Archives/edgar/d
ata/1318605/000110465924053333/tm2326076d15_def14a.htm.
– 64 –
of the compensation package. The 2018 compensation package failed to receive
131. Nonetheless, Denholm further decried that “Elon has not been paid for
any of his work for Tesla for the past six years,” and that this struck her and the
CEO.”135
Tornetta—demonstrates that her allegiance lies with Musk before it does with
Tesla. Given the “life-changing,” outsized compensation she has received through
Gebbia has reportedly attended social gatherings with Musk where “Musk took
134
Id.
135
Id.
– 65 –
ketamine recreationally through a nasal spray bottle multiple times.” 136 Gebbia has,
on information and belief, done nothing to address Musk’s recreational use of illicit
substances and inferably feels pressure to take drugs with Musk. Further, Gebbia
after Tornetta was issued that was charged with evaluating redomestication and
Musk’s pay package. Gebbia stepped down from that committee because “Musk
had discussed purchasing a house from [Gebbia’s] start-up” and Gebbia was
drug-fueled friendship with Musk, support the conclusion that Gebbia has a deep
136
Kirsten Grind, Emily Glazer, Rebecca Elliott, Coulter Jones, The Money and Drugs
That Tie Elon Musk to Some Tesla Directors, WALL ST. J. (Feb. 3, 2024),
https://www.wsj.com/tech/elon-musk-tesla-money-drugs-board-61af9ac4.
137
Rachael Levy, Exclusive: Tesla director Gebbia says he discussed selling house to
Musk, REUTERS, (June 3, 2024), https://www.reuters.com/business/tesla-director-gebbia-
says-he-discussed-selling-house-musk-2024-06-03/; see also Form DEF 14A at 19, (April
29, 2024),
https://www.sec.gov/ix?doc=/Archives/edgar/data/1318605/000110465924053333/tm232
6076d15_def14a.htm.
– 66 –
134. Straubel is incapable of considering a demand against Musk.
Straubel co-founded Tesla alongside Musk and served as Tesla’s Chief Technology
Officer for over fourteen years. In addition to his service on the Board, Straubel is
the Founder and Chief Executive Officer of Redwood Materials Inc. (“Redwood”).
batteries.”138 Tesla and Redwood are parties to an agreement with respect to the
on the board of SolarCity Corporation, which Musk founded with his cousins and
that Musk caused Tesla to acquire in 2016.140 On information and belief, Straubel
has also done nothing to address Musk’s recreational use of illicit substances.
team, and his status as a Tesla co-founder, support the conclusion that Straubel has
138
Form DEF 14A at 14 (April 29, 2024), https://www.sec.gov/ix?doc=/Archives/edgar/d
ata/1318605/000110465924053333/tm2326076d15_def14a.htm.
139
Id.
140
Id.
– 67 –
a deep relationship with Musk, is beholden to him, and is incapable of considering
$62 million from the exercise of equity awards received for her service on the
Board” and currently owns 771,255 shares worth well over $100 million.142 Tesla
worth.”143 This compensation vastly outstrips the average total compensation for
board members in the largest 200 U.S. companies, which, in 2023, was
141
Tornetta, 310 A.3d at 509-10.
142
Form DEF 14A at E-28 (April 29, 2024), https://www.sec.gov/ix?doc=/Archives/edga
r/data/1318605/000110465924053333/tm2326076d15_def14a.htm.
143
Id.
144
Kirsten Grind, Emily Glazer, Rebecca Elliott, Coulter Jones, The Money and Drugs
That Tie Elon Musk to Some Tesla Directors, WALL ST. J. (Feb. 3, 2024),
https://www.wsj.com/tech/elon-musk-tesla-money-drugs-board-61af9ac4.
– 68 –
Thompson is beholden to Musk and is incapable of considering a demand against
him.
137. Under these circumstances, the Board cannot be expected to bring the
claims asserted herein, and the actions of the Board challenged herein cannot enjoy
COUNTS
COUNT I:
DERIVATIVE CLAIM FOR BREACH OF FIDUCIARY DUTY AGAINST
MUSK AS A DIRECTOR, OFFICER, AND CONTROLLER
stockholder of Tesla, has been a fiduciary of the Company at all relevant times. As
such, he owed the Company the highest duties of loyalty and care.
company xAI and, inter alia: (i) hiring AI employees away from Tesla, (ii) diverting
microchips from Tesla to X and xAI, and (iii) using Tesla’s data to develop xAI’s
141. xAI operates in the same line of business as Tesla. Tesla has the
financial capability to operate xAI. Tesla has an interest and expectancy in the
– 69 –
opportunity to operate an AI business. Musk created a conflict of interest by
COUNT II:
DERIVATIVE CLAIM FOR BREACH OF FIDUCIARY DUTY
AGAINST THE DIRECTOR DEFENDANTS
145. Plaintiffs repeat and reallege each and every allegation above as if set
Company. As such, they owe the Company the highest duties of loyalty and care.
disregarding their duties to Tesla and its public common stockholders in connection
Musk, and other breaches of fiduciary duty, has resulted in, inter alia: (i) Musk
– 70 –
founding and operating xAI independently of Tesla; (ii) xAI hiring AI employees
away from Tesla, (iii) the diversion of microchips from Tesla to X and xAI, and (iv)
xAI’s use of Tesla’s data to develop xAI’s own software/hardware, all without
compensation to Tesla. Accordingly, the Company has been harmed by the Director
COUNT III:
DERIVATIVE CLAIM FOR UNJUST ENRICHMENT AGAINST MUSK
150. Plaintiffs repeat and reallege each and every allegation above as if set
company xAI is unfair to Tesla, is the product of breaches of fiduciary duty by the
Individual Defendants, and has resulted in inter alia: (i) xAI hiring AI employees
away from Tesla, (ii) the diversion of microchips from Tesla to X and xAI, and (iii)
xAI’s use of Tesla’s data to develop xAI’s own software/hardware, all without
compensation to Tesla.
– 71 –
153. Under these circumstances, it would be unconscionable to permit Musk
to retain the improper benefits received pursuant to these breaches of fiduciary duty.
G. Awarding such other and further relief as this Court may deem just and
proper.
– 72 –
/s/ Christine M. Mackintosh
Christine M. Mackintosh (#5085)
Of Counsel: Vivek Upadhya (#6241)
William G. Passannante II (#7093)
David J. Schwartz GRANT & EISENHOFER P.A.
David L. Wales 123 Justison St., 7th Fl.
SAXENA WHITE P.A. Wilmington, DE 19801
10 Bank Street, 8th Floor (302) 622-7000
White Plains, New York 10606 [email protected]
(914) 437-8551 [email protected]
[email protected]
Adam D. Warden
SAXENA WHITE P.A. Thomas Curry (#5877)
7777 Glades Road, Suite 300 SAXENA WHITE P.A.
Boca Raton, Florida 3343 824 N. Market Street, Suite 1003
(561) 394-3399 Wilmington, Delaware 19801
(302) 485-0483
Brian Schall [email protected]
THE SCHALL LAW FIRM
2049 Century Park East, Suite 2460
Los Angeles, CA 90067 Counsel for Plaintiffs
(424) 303-1964
– 73 –