Tesla has disclosed a $2 billion investment in Elon Musk's AI company xAI, part of its Series E funding round, despite ongoing shareholder lawsuits and a rejected nonbinding vote. The move aims to foster AI collaborations under Tesla's Master Plan Part IV. The investment, made on market terms, is expected to close in the first quarter of 2026.
On January 16, 2026, Tesla entered into an agreement to invest approximately $2 billion to acquire shares of Series E Preferred Stock in xAI, as revealed in its Q4 2025 shareholder update. This investment represents 10% of xAI's recently announced $20 billion Series E round, which valued the company at about $230 billion. Other investors in the round included Nvidia, Cisco, Qatar's sovereign wealth fund, and Fidelity.
Tesla justified the investment by linking it to Master Plan Part IV, stating that the company is 'building products and services that bring AI into the physical world' while xAI develops 'leading digital AI products and services, such as its large language model (Grok).' In connection with the deal, Tesla and xAI signed a framework agreement to evaluate potential AI collaborations, building on existing ties like Tesla supplying Megapack batteries to xAI data centers and integrating the Grok chatbot into some vehicles. The agreement is intended to 'enhance Tesla’s ability to develop and deploy AI products and services into the physical world at scale.' The investment is subject to regulatory approval and expected to close in Q1 2026.
The decision comes amid controversy. In June 2024, Tesla shareholders sued Musk for breach of fiduciary duty, alleging he diverted AI resources and talent from Tesla to xAI, which he founded in 2023. The lawsuit seeks to transfer Musk's xAI ownership to Tesla. Additionally, a nonbinding shareholder proposal in November 2025 to authorize the investment received 1.06 billion votes in favor and 916 million against, but 473 million abstentions—counted as opposition under Tesla's bylaws—led to its rejection. Despite this, Tesla's board proceeded.
During the Q4 earnings call, Musk commented, 'But if there are things xAI can help accelerate our progress, then why should we not do that?' Tesla reported Q4 2025 revenue of $24.9 billion, slightly above estimates, but full-year profit fell 46% to $3.8 billion amid an 8.6% drop in vehicle deliveries to 1.64 million units. xAI is reportedly burning through $1 billion monthly to compete in the AI space.
Tesla shares rose over 3% in after-hours trading following the announcement, reflecting optimism about AI synergies despite governance concerns.
