Tesla Shareholders Sue Elon Musk Even as They Approve $56 Billion Pay Package

• Tesla shareholders are bringing a lawsuit against Elon Musk over the decision to start the startup xAI, which, according to them, is a competitor company.
• After a Delaware judge rescinded it earlier this year, the shareholders have also voted to ratify a 2018 pay package worth approximately $56 billion.

Shareholders at Tesla are suing CEO Elon Musk and other members of the board of directors over the decision to create the AI startup xAI. According to the lawsuit, xAI is a competitor to Tesla, which has drained away resources and talent from the company. The move followed Musk’s threat to develop AI outside Tesla if he was not given additional voting rights in the company.

The suit alleges that Musk and Tesla board members violated their legal and ethical duties and Tesla’s code of business ethics by unfairly supporting Musk in creating a competitor company. It asks that Musk be forced to give up his stake in xAI and hand it over to Tesla.

Since Musk launched xAI in 2023, he has raised $6 billion in funding to compete with market leaders such as Google, OpenAI, and Microsoft. However, Musk has also redirected resources from Tesla to xAI and used shipments of NVIDIA AI processors earmarked for Tesla for his AI startup.

See More: Companies Should Not Solely Rely on Younger Employees for AI Training: MIT, Harvard, Wharton Study

Surprisingly, this suit came mere hours before shareholders voted to re-ratify Musk’s $56 billion compensation package, which a Delaware judge disallowed earlier this year. The approval of the pay plan, initially created in 2018, cannot overrule the judge’s ruling but can aid Musk in the future if he wishes a court to allow such options going forward. The value of Tesla’s shares increased by nearly 3% after the news came out.

The increase in the pay package is subject to conditions, including the requirement that Tesla hit several market capitalization, operational, depreciation and amortization, revenue, and tax milestones while Musk is either CEO, chairman, or chief product officer at the company.

If successful, such a move could also potentially tie Musk further to the company, reducing the chances of him jumping ship for other ventures, including potentially competitive interests such as xAI. The impact of the lawsuit and company votes can have significant ramifications going forward.

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