During Tesla’s second-quarter earnings call on Wednesday, Truist analyst William Stein asked Musk about yet another tech venture he recently started up and incorporated in Nevada: xAI. Musk recently said that the artificial intelligence startup aims to compete with Google Bard or OpenAI’s ChatGPT someday, and plans to collaborate with Tesla on software and silicon alike.
Stein asked him, “For investors that think there might be quite a bit of value in the AI features and products of Tesla, it might be concerning to see you pursuing another endeavor where AI is the focus. Can you talk about how xAI might overlap, might perhaps compete with Tesla or in other ways perhaps it enhances the value of what Tesla does?”
Musk claimed that xAI and its focus artificial general intelligence on would bring some value to Tesla, and talked about recruiting as an example.
“There were just some of the world’s best AI engineers and scientists that were willing to join a startup but they were not willing to join a large, sort of relatively established company like Tesla.” He added, “So I was like, ok well, better it’s a startup that I run than they go work somewhere else. That’s kind of the genesis of xAI.”
In addition to the xAI example, he said he was only able to entice a top materials science engineer away from his job at Apple by promising the engineer could work concurrently for SpaceX and Tesla. The engineer in question, Charles Kuehmann, joined Tesla in late 2015 and now has the title of Vice President of SpaceX and Tesla materials engineering, reporting directly into the CEO.
The issue of Musk and his multiple ventures also came up earlier this month, when Sen. Elizabeth Warren, D-Mass., urged the Securities and Exchange Commission to investigate its Twitter ties and related corporate governance issues.
Musk led a $44 billion buyout of the social media company last year and appointed himself CEO there temporarily. He is now the controlling shareholder, CTO and executive chairman of Twitter while holding down the CEO role both at Tesla and at his aerospace and defense company, SpaceX. He’s also the founder and funder at the brain-computer interface startup Neuralink and tunneling venture The Boring Co.
Tesla is the only public company among the bunch. And it has never disclosed to shareholders exactly how much talent, time and money it has spent helping Musk at his other ventures, or why sending people over to Twitter would comprise a reasonable use of Tesla resources. Musk previously enlisted Tesla, SpaceX and The Boring Co. employees to assist him with his Twitter takeover, as CNBC reported.
At least one senior Tesla employee has jumped ship to Musk’s X Corp., the parent company of Twitter. Court filings revealed that Dhruv Batura, who had worked at Tesla since late 2013 and was a Senior Manager of Business Operations Finance there, is now a senior director of finance at X Corp. Batura was posting job ads for X Corp. on Twitter on the day of Tesla’s second-quarter earnings report.
In a May 2023 proxy filing, Tesla did disclose a few details about its related party transactions. Among these, Tesla revealed that “Twitter is party to certain commercial and support agreements with Tesla. Under these agreements, Twitter incurred expenses of approximately $1.0 million in the aggregate in 2022 and $0.4 million in 2023 through February.” Tesla hasn’t said what, exactly, Twitter is buying from the company.
Risks include lack of focus, employee burnout
According to London School of Economics Professor of Organisational Behaviour Randall S. Peterson, “Musk is making a convoluted argument in saying ‘I am helping Tesla by keeping these great people from joining a competitor.’ It’s a counter-factual you cannot ever really test or challenge in an investigation.”
Most startups fail, Peterson noted, and people who want to create startups were probably not likely to join Tesla’s direct competitors in the automotive industry.
Peterson said Musk’s many ventures can create risks for Tesla, and shareholders should seek more details.
“It’s hard to focus on and excel at any one thing when you run multiple companies,” Peterson said. “That’s a risk around the CEO himself. Would most companies’ shareholders tolerate their CEO running several other companies at the same time? The answer to that is probably no. So that raises a question of what the Tesla board is doing, whether they are independent at any level, or are so enamored of Musk that they not only tolerate his unusual way of working, but might be missing significant fundamental problems as long as the money keeps coming.”
Boards at companies that have ended up in crisis, like Enron and Royal Bank of Scotland, failed to rein in their CEOs despite signs of problems for many quarters, he noted.
Another risk, Peterson said, is that Musk’s employees may feel pressure to work on many projects at once for him concurrently, outside of Tesla. In a quest to please him or rack up new work experience, they may fail to recuperate from their work and burn out. Burnout, he said, can lead to high attrition or poor performance.
Finally, the professor noted, Musk may be creating distractions that impede focus among his employees, even if his intention is to cross-pollinate among his businesses.
“You need to be super-focused to be the best at something, both as an individual and as a corporation. That’s the reason we have seen a trend away from conglomerates which were big in the 70s to companies that are more focused today,” the professor said.
Still, Musk appears to be doubling down on unapologetic collaborations between companies in his growing empire.
On Wednesday’s call, he was asked to give an update on Tesla’s progress developing a humanoid robot dubbed Optimus. He waxed futuristic, and said that Tesla may one day collaborate with Neuralink to make robotic, prosthetic arms and legs to help amputees return to full mobility or dexterity.
— CNBC’s Rohan Goswami contributed reporting.