Musk to discuss $5 billion xAI investment with Tesla board

By Hyunjoo Jin and Akash Sriram

(Reuters) -Tesla CEO Elon Musk said on Thursday he and the board of the electric vehicle company will discuss making a $5 billion investment in his artificial intelligence startup xAI, fueling concerns about a conflict of interest.

Musk, the world's richest person, launched xAI last year in a bid to compete with Microsoft-backed OpenAI. That sparked concerns he may allocate some resources of the automaker to the AI company.

Many Musk fans have supported the idea: On Tuesday, Musk launched a poll asking users on social media platform X whether Tesla should invest $5 billion in xAI. More than two-thirds of nearly 1 million respondents voted in favor. It is not clear how many are Tesla investors.

The poll came shortly after Tesla said its second-quarter automotive gross margin and profit fell short of Wall Street estimates on Tuesday as the company cut prices and offered incentives to boost sales.

"Looks like the public is in favor. Will discuss with Tesla board," Musk said in a post on X on Thursday.

During Tesla's earning conference call on Tuesday, Musk said xAI would be "helpful in advancing full self-driving and in building up the new Tesla data center," adding that there are opportunities to integrate xAI's chatbot, Grok, with Tesla's software.

Despite a frenzy of investment, most AI firms are still working out business models while spending heavily on technology.

"It's hard to make a claim that this is in the best interest of their Tesla shareholder," said Brent Goldfarb, a business school professor at the University of Maryland, who said it amounted to a transfer of Tesla wealth.

"In AI in general, nobody is quite sure where the money is going to be made and who is going to pay for it. AI right now has all the signs of a bubble," he said.

In 2018, Musk left OpenAI, which he co-founded because of a potential future conflict with Tesla, which is developing AI software for self-driving vehicles.

Musk said in April that xAI is hiring some engineers from Tesla to retain talent in the face of recruiting by Open AI.

Musk's xAI raised $6 billion in a series B funding in May, fetching a post-money valuation of $24 billion. Its investors include Andreessen Horowitz and Sequoia Capital.

Musk has previously said he plans for a quarter of xAI to be owned by investors in X, which he bought for $44 billion. The social media firm's value has plunged since then.

Musk previously has faced criticism over potential conflicts of interest among the many companies he owns and runs. Some Tesla shareholders alleged the 2016, $2.6 billion acquisition of struggling rooftop solar company, SolarCity, founded by Musk and his cousins, amounted to a bailout. Last year, however, the Delaware Supreme Court upheld a ruling that Musk did not push the electric carmaker to overpay for SolarCity.

(Reporting by Hyunjoo Jin in San Francisco and Akash Sriram in Bengaluru, Additional reporting by Paul Katie in New York; Editing by Shinjini Ganguli, Peter Henderson and Daniel Wallis)