Tesla shareholders sue Musk for starting competing AI company

The timing of the lawsuit, filed just hours before Tesla's annual meeting, is significant because it brings attention to the issue at a time when shareholders are gathered to discuss the company's direction and performance. This may increase pressure on Musk and the board to address the concerns raised in the lawsuit and could potentially influence the outcome of the meeting. Additionally, the lawsuit's timing may have been strategically chosen to maximize its impact on public opinion and the media coverage of the issue.

The lawsuit filed by the Cleveland Bakers and Teamsters Pension Fund against Elon Musk and Tesla's board of directors makes several allegations. The plaintiffs claim that Musk and the board members breached their fiduciary duties to shareholders and unjustly enriched Musk by allowing him to launch a competing company, xAI. They also allege that Musk violated Tesla's code of business ethics by creating and leading xAI, and that the board has allowed him to continue to violate this code.

The complaint states that Musk's actions are comparable to a hypothetical situation involving the CEO of Coca-Cola starting a rival soft-drink company and sending ingredients to it. The plaintiffs note that after Musk launched xAI in 2023 and secured $6 billion in funding, Tesla began diverting talent and resources from Tesla to xAI. They point out that at least 11 employees have joined xAI directly from Tesla, and that Tesla has reportedly been providing xAI access to its AI-related data.

Additionally, the plaintiffs cite CNBC's reporting on Musk diverting a shipment of AI processors from Nvidia, which had been reserved for Tesla, to his social media company X. They argue that the board has failed to protect the interests of Tesla and its stockholders in the face of Musk's disloyalty.

The plaintiffs are asking the court to force Musk to disgorge his stake in xAI and hand it over to Tesla.