At Wednesday's second-quarter earnings call, an analyst posed a question regarding Elon Musk's newest project, xAI, and why he was pursuing artificial intelligence at another business while Tesla too needs AI knowledge. In his response, Musk mentioned that he runs multiple ventures to defend the best personnel from being recruited by other companies. While Tesla has not revealed to shareholders the exact expense and staff power it has set aside to bolster Musk's other projects, there are potential risks such as lack of concentration, employee exhaustion and desertion.
The activity and connections between Elon Musk's various businesses have come under heightened examination as the Tesla chief executive continues to add even more to his portfolio. During the company's second-quarter earnings call on Wednesday, Truist expert William Stein asked Musk about xAI, an artificial intelligence startup he has recently formed and established in Nevada. Musk has publicly said that the AI startup intends to go head to head with Google Brain or OpenAI's ChatGPT one day, and plans on working with Tesla when it comes to software and silicon.To that, Stein wanted to know, “For investors who think there could be substantial value in Tesla’s AI features and products, it could be concerning to see you start up another effort focused on AI. Could you clarify how xAI could overlap or perhaps even compete with Tesla, or in what ways it could enhance Tesla’s value?”In response, Musk suggested that xAI and its goal of artificial general intelligence would offer some benefits to Tesla. He gave the instance of recruitment, saying, “There were some of the planet's top AI engineers and scientists who were open to joining a startup but not a large, somewhat established firm like Tesla. So I thought, better it be a startup that I manage than them work somewhere else. That’s where xAI came from.”In addition to xAI, Musk went on to discuss how he persuaded a top materials science engineer from Apple to join both SpaceX and Tesla by offering them the ability to work on both concurrently. The engineer, Charles Kuehmann, is presently VP of SpaceX and Tesla materials engineering, and reports directly to the CEO.The subject of Musk and his multiple business ventures was also raised earlier in the month when Senator Elizabeth Warren requested that the SEC look into his association with Twitter and its related corporate governance issues. Musk realized a $44 billion bid for the social media firm last year and appointed himself CEO for a short period of time. He is now the dominant shareholder, CTO, and executive chair at Twitter, while also serving as CEO of Tesla and his aerospace and defense firm, SpaceX. He's also the founder and main backer at brain-computer interface startup Neuralink and digging company The Boring Co.Tesla is the only publicly traded company in the mix. It's never revealed to shareholders exactly how much money, talent, and time it has spent helping Musk with his other companies, or why the use of Tesla resources for activities related to Twitter is reasonable. According to CNBC, Musk utilized Tesla, SpaceX, and The Boring Co. workers to assist him with his Twitter acquisition.At least one senior Tesla employee has now taken a job with Musk's X Corp., the parent company of Twitter. In court records, it was revealed that Dhruv Batura, who had been at Tesla since late 2013 and was a senior manager of business operations finance, is now a senior director of finance at X Corp. Batura was posting employment ads for X Corp. on Twitter on the day of Tesla's second-quarter earnings report.A May 2023 filing from Tesla did disclose a few details about its related-party transactions. Tesla revealed that “Twitter has certain commercial and support agreements with Tesla. Under these agreements, Twitter incurred expenses of around $1.0 million in total in 2022 and $0.4 million through February 2023.” Tesla hasn't mentioned what, exactly, Twitter is buying from the business.
Prof. Randall S. Peterson, London School of Economics professor of organizational behavior, expressed his doubts on Elon Musk's argument that he is helping Tesla by preventing its employees from joining competitors. Peterson noted that it is hard to test or challenge such a claim and that most startups fail, implying that these employees might not have joined Tesla's competitors anyway. He pointed out the risk to shareholders posed by Musk's multiple ventures and commented on the unusual way of working, questioning the board's level of independence. Peterson also noted that employees may feel pressured to work on many of Musk's projects at one time, leading to burnout, distraction, and lack of focus. He stated that companies today tend to be focused on one thing, unlike conglomerates in the 70s, and concluded by noting that Musk is continuing with his collaborative approach. Twitter sent a reply with an automated symbol when CNBC's Rohan Goswami requested a comment from Tesla.
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