EFiled: Jun 13 2024 11:11AM EDT

Transaction ID 73381641
Case No. 2024-0646-
IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE

CLEVELAND BAKERS AND

)
TEAMSTERS PENSION FUND,
)
DANIEL HAZEN, and MICHAEL
)
GIAMPIETRO, derivatively on behalf
)
of Nominal Defendant TESLA, INC.,
)
)
Plaintiffs,
)
)
v.
)
) C.A. No. 2024-__________
ELON MUSK, ROBYN M.
)
DENHOLM, IRA EHRENPREIS, JOE
)
GEBBIA, JAMES MURDOCH,
)
KIMBAL MUSK, JB STRAUBEL, and
)
KATHLEEN WILSON-THOMPSON,
)
)
Defendants
)
and
)
)
TESLA, INC.,
)
)
Nominal Defendant.

VERIFIED STOCKHOLDER DERIVATIVE COMPLAINT

Christine M. Mackintosh (#5085)

Vivek Upadhya (#6241)
Of Counsel: William G. Passannante II (#7093)
GRANT & EISENHOFER P.A.
David J. Schwartz 123 Justison St., 7th Fl.
David L. Wales Wilmington, DE 19801
SAXENA WHITE P.A. (302) 622-7000
10 Bank Street, 8th Floor cmackintosh@gelaw.com
White Plains, New York 10606 vupadhya@gelaw.com
(914) 437-8551 wpassannante@gelaw.com
 Thomas Curry (#5877)
SAXENA WHITE P.A.
Adam D. Warden 824 N. Market Street, Suite 1003
SAXENA WHITE P.A. Wilmington, Delaware 19801
7777 Glades Road, Suite 300 (302) 485-0483
Boca Raton, Florida 3343 tcurry@saxenawhite.com
(561) 394-3399
Counsel for Plaintiffs
Brian Schall
THE SCHALL LAW FIRM
2049 Century Park East, Suite 2460
Los Angeles, CA 90067
(424) 303-1964

(pro hac vice motions forthcoming)

Dated: June 13, 2024

 TABLE OF CONTENTS

INTRODUCTION ........................................................................................ 1
PARTIES ...................................................................................................... 8
SUBSTANTIVE ALLEGATIONS ............................................................ 13
A. For Years, Musk and Tesla Consistently Tout AI As The Key To
The Company’s Future ................................................................. 13
B. Musk Attempts To Merge OpenAI and Tesla, Then Resigns From
OpenAI Because Of The Conflict Created By His Simultaneous
Stewardship of Two AI Companies ............................................. 24
C. Musk Becomes “Uncomfortable Growing Tesla To Be a Leader in
AI & Robotics Without Having ~25% Voting Control” and
Develops a “Prefer[ence] to Build [AI] Products Outside of
Tesla.”........................................................................................... 26
D. Acting On His Preference to “Build [AI] Products Outside of
Tesla,” Musk Founds xAI and Begins Redirecting Scarce AI
Resources From Tesla to xAI ....................................................... 29
E. After This Court Rescinds Musk’s Pay Package and Reduces His
Stake in Tesla, Musk Accelerates the Growth of xAI, Raising
Billions of Dollars and Poaching at Least Eleven Employees From
Tesla ............................................................................................. 40
F. The Board Permits Musk to Create and Grow xAI, Hindering
Tesla’s AI Development Efforts and Diverting Billions of Dollars
in Value from Tesla to xAI .......................................................... 46
DERIVATIVE ALLEGATIONS ............................................................... 52
DEMAND IS EXCUSED AS FUTILE ...................................................... 53
COUNTS..................................................................................................... 69
PRAYER FOR RELIEF ............................................................................. 72

–i–
 Plaintiffs Cleveland Bakers and Teamsters Pension Fund, Daniel Hazen, and

Michael Giampietro (“Plaintiffs”), on behalf of Nominal Defendant Tesla, Inc.

(“Tesla” or the “Company”), bring the following Verified Stockholder Derivative

Complaint alleging: (i) breaches of fiduciary duty against Defendants Elon Musk

(“Musk”), Robyn M. Denholm (“Denholm”), Ira Ehrenpreis (“Ehrenpreis”), Joe

Gebbia (“Gebbia”), James Murdoch (“Murdoch”), Kimbal Musk (“Kimbal”),1 JB

Straubel (“Straubel”), and Kathleen Wilson-Thompson (“Wilson-Thompson”) (the

“Individual Defendants”); and (ii) unjust enrichment against Defendant Musk.

The allegations of the Complaint are based on Plaintiffs’ knowledge as to

themselves, the investigation of counsel, and on information and belief as to all other

matters.

INTRODUCTION

1. Could the CEO of Coca-Cola loyally start a competing soft-drink

company on the side, then divert scarce ingredients from Coca-Cola to the startup?

Could the CEO of Goldman Sachs loyally start a competing financial advisory

company on the side, then hire away key bankers from Goldman Sachs to the

startup? Could the board of either company loyally permit such conduct without

doing anything about it? Of course not.

1
This Complaint refers to Kimbal Musk as “Kimbal” solely to distinguish him from his
brother, Elon Musk. No disrespect is intended.

–1–
 2. The notion that the CEO of a major, publicly-traded Delaware

corporation could—with the evident approval of his board—start a competing

company, and then divert talent and resources from his corporation to the startup,

is preposterous. No special rules apply to Tesla or Musk. 2 Yet, at Tesla, the

preposterous has become reality.

3. For years, Tesla and Musk have touted artificial intelligence (“AI”) as

the key to Tesla’s future and represented that Tesla is, above all else, an AI

company. In Musk’s own words, “Tesla is an AI/robotics company that appears to

many to be a car company[,]”3 and “Tesla is the biggest AI project on earth.”4

Tesla’s CFO has represented that investments in “AI-related technologies” are

Tesla’s “single most important priority.”

4. Prominent investors and analysts have accepted Tesla’s framing and

consistently highlighted the importance of Tesla’s AI endeavors to the current and

future value of Tesla as a whole. Cathie Wood identified success in the AI space

2
See Guth v. Loft, 5 A.2d 503, 515 (Del. 1939) (“A genius in his line he may be, but the
law makes no distinction between the wrong doing genius and the one less endowed.”).
3
Elon Musk (@elonmusk), X (Jan. 3, 2024 12:51am), https://x.com/elonmusk/status/
1742423298217033776.
4
Elon Musk (@elonmusk), X (Apr. 27, 2024 8:13pm), https://x.com/elonmusk/status/
1784375472887066653.

–2–
as a multi-trillion-dollar opportunity for Tesla.5 Adam Jonas stressed the

importance of AI to Tesla and cautioned that “[a]ny change . . . that impedes Tesla’s

ability to participate in the development of AI could be detrimental to the

. . . investment thesis.”6

5. Meanwhile, Musk—CEO, controller, director, and “Technoking” of

Tesla—started X.AI Corp. (“xAI”), a separate AI company, began diverting scarce

talent and resources from Tesla to xAI, and raised billons of dollars for xAI while

touting xAI’s access to Tesla’s AI-related data.

6. xAI touts a “focus[] on the development of advanced AI systems that

are truthful, competent, and maximally beneficial for all of humanity” and a

“mission . . . to understand the true nature of the universe.”7 Every public indication

is that it is a general-purpose AI research and development company with a broad

focus necessarily overlapping with Tesla’s own pursuits. Given the unique

dynamics of the burgeoning AI industry—including extraordinarily intense

5
Evie Liu, Cathie Wood Thinks Nvidia Has More to Prove. Her Favorite AI Stocks—and
Why She Still Loves Tesla, BARRON’S (Apr. 11, 2024),
https://www.barrons.com/articles/ark-invest-cathie-wood-nvidia-tesla-stock-bitcoin-
aa4a5f78.
6
Tim Higgins, Tesla Was Once About Climate Change, Driverless Cars, AI. Now What?
WALL ST. J. (Feb. 10, 2024), https://www.wsj.com/business/autos/tesla-has-long-been-a-
hope-stock-but-what-are-investors-hoping-for-now-7031171f.
7
xAI, https://x.ai/blog/series-b.

–3–
competition for talent and resources—Tesla and xAI are clear competitors. Musk

has acknowledged that the “talent war for AI is the craziest talent war I’ve ever

seen”8 and the scarcity of processors in the AI industry has been widely reported. 9

7. Already, Musk has diverted scarce talent and resources from Tesla to

xAI. Before establishing xAI, Musk represented that “[c]onvincing the best AI

talent to join Tesla is the sole goal.”10 After founding xAI, Musk hired away

numerous key AI-focused employees from Tesla to xAI.11 In response to a

suggestion that a prominent AI researcher should join Tesla, Musk publicly

responded that he should join xAI instead.12 In the “craziest talent war” in a

generation, Musk should be Tesla’s general; instead, his priority appears to be xAI.

8
Elon Musk (@elonmusk), X (Apr. 3, 2024 6:00pm), https://x.com/elonmusk/status/
1775644544853221599.
9
See, e.g., Paresh Dave, Nvidia Chip Shortages Leave AI Startups Scrambling for
Computing Power, WIRED (Aug. 24, 2023), https://www.wired.com/story/nvidia-chip-
shortages-leave-ai-startups-scrambling-for-computing-power/.
10
Elon Musk (@elonmusk), X (Jul. 29, 2021 12:51am), https://x.com/elonmusk/status/
1420607874762518528.
11
Becky Peterson, Musk’s xAI is Poaching Engineers From Tesla, THE INFORMATION
(Apr. 3, 2024), https://www.theinformation.com/articles/musks-xai-is-poaching-
engineers-from-tesla.
12
Elon Musk (@elonmusk), X (Dec. 9, 2023 4:19am), https://x.com/elonmusk/status/
1733416090439451114.

–4–
 8. Similarly, before establishing xAI, Musk stated that Tesla needed more

Nvidia H100 GPUs than Nvidia had available for sale, a common problem in the

AI industry. Musk stated during a July 2023 earnings call that Tesla would “take

the hardware as fast as Nvidia will deliver it to us” and bemoaned Nvidia’s inability

to “deliver us enough GPUs.” After Musk established xAI, however, he began

personally directing Nvidia to redirect GPUs from Tesla to xAI and X. According

to an internal Nvidia memo, Musk in December 2023 was “prioritizing X H100

GPU cluster deployment at X versus Tesla by redirecting 12k of shipped H100

GPUs originally slated for Tesla to X instead[.]”13 As CNBC later explained, “By

ordering Nvidia to let privately held X jump the line ahead of Tesla, Musk pushed

back the automaker’s receipt of more than $500 million in graphics processing

units, or GPUs, by months, likely adding to delays in setting up the supercomputers

Tesla says it needs to develop autonomous vehicles and humanoid robots.”14

9. These striking events are the result of a conflict that Musk has long

understood. Musk previously cofounded and served as a director of OpenAI, a

prominent AI company. In 2018, as Tesla increased its focus on AI, Musk

attempted to cause Tesla to acquire OpenAI—thereby acknowledging Tesla has an

13
Lora Kolodny, Elon Musk Ordered Nvidia to Ship Thousands of AI Chips Reserved for
Tesla to X and xAI, CNBC (June 4, 2024), https://www.cnbc.com/2024/06/04/elon-musk-
told-nvidia-to-ship-ai-chips-reserved-for-tesla-to-x-xai.html.
14
Id.

–5–
interest in or expectancy in similar business opportunities and that AI is within

Tesla’s line of business. When that effort failed, Musk resigned from OpenAI and

acknowledged that Tesla and OpenAI are competitors. Specifically, in early 2019,

he acknowledged publicly that “Tesla was competing for some of the same people

as OpenAI[.]”15 OpenAI also acknowledged the conflict, stating upon Musk’s

departure: “As Tesla continues to become more focused on AI, this will eliminate a

potential future conflict for Elon.”16

10. Much has changed since 2018. Musk’s recent public statements

suggest that he consciously founded xAI to build outside of Tesla AI-related

products that he previously intended to build inside of Tesla. Specifically, in

January 2024, Musk posted on X: “I am uncomfortable growing Tesla to be a leader

in AI & robotics without having ~25% voting control . . . . Unless that is the case,

I would prefer to build products outside of Tesla.”17 At the time of that remarkable

post, Musk beneficially owned approximately 21% of Tesla, including the options

he received pursuant to a 2018 compensation plan. Shortly thereafter, this Court

15
Elon Musk (@elonmusk), X (Feb. 16, 2019 11:27pm), https://x.com/elonmusk/status/
1096989482094518273.
16
Fred Lambert, Elon Musk leaves Open AI’s board due to potential conflict with Tesla’s
own AI effort, ELECTREK (Feb. 21, 2018), https://electrek.co/2018/02/21/elon-musk-leaves-
open-ai-tesla-ai-effort/.
17
Elon Musk (@elonmusk), X (Jan. 15, 2024 3:55pm), https://x.com/elonmusk/status/
1746999488252703098.

–6–
rescinded Musk’s 2018 compensation plan in Tornetta v. Musk, 310 A.3d 430 (Del.

Ch. 2024), reducing his beneficial ownership to 13%.

11. Following Tornetta, Musk’s desire to increase his voting power to 25%

or greater in the near-term was effectively foreclosed. Musk responded by ramping

up operations at xAI. In March 2024, xAI poached its most significant former Tesla

employee, Ethan Knight, who had led Tesla’s computer vision team. In May 2024,

xAI announced that it had completed its Series B funding round, through which it

raised $6 billion at a post-money valuation of $24 billion.

12. Through all of this, Musk’s fellow directors on the Tesla board of

directors (the “Board”) have done nothing. The Board has allowed Musk—the CEO

and largest stockholder of Tesla—to found and lead another AI company; to plunder

resources from Tesla and divert them to xAI; and to create billions in AI-related

value at a company other than Tesla. Consistent with its long history of

obsequiousness to Musk, the Tesla Board has utterly failed to even attempt to meet

its unyielding fiduciary duty to protect the interests of Tesla and its stockholders in

the face of Musk’s brazen disloyalty.

13. Plaintiffs bring this action to hold Musk and his fellow directors liable

for their disloyalty and to recover for Tesla the value that Musk has, with the tacit

approval of the Board, expropriated from it. The value that has been diverted from

Tesla must be returned.

–7–
 PARTIES

14. Plaintiff Cleveland Bakers and Teamsters Pension Fund is, and has

been at all relevant times, a beneficial owner of shares of Tesla common stock.

15. Plaintiff Michael Giampietro is, and has been at all relevant times, a

beneficial owner of shares of Tesla common stock.

16. Plaintiff Daniel Hazen is, and has been at all relevant times, a

beneficial owner of shares of Tesla common stock.

17. Defendant Elon Musk has served as a director of Tesla since 2004

and as Tesla’s CEO since October 2008, naming himself “Technoking” in March

2021. Musk also served as the Chairman of Tesla’s Board from 2004 until

September 2018. Musk is Tesla’s largest stockholder, owning roughly 13% of

Tesla’s common stock through the Elon Musk Revocable Trust (excluding options).

18. Musk is also Tesla’s controller. Indeed, this Court found in Tornetta

that Musk “wielded the maximum influence that a manager can wield over a

company.”18 The Tornetta Court identified several “sources of influence” that

supported a finding that Musk controlled Tesla.19 These factors apply with equal

18
Tornetta, 310 A.3d at 501.
19
Id.

–8–
force here. First, Musk remains Tesla’s single largest stockholder.20 Second, Musk

continues to exercise “managerial supremacy.”21 Notably, in the wake of Tornetta,

Musk managed to fully mobilize Tesla and the Board to support his plan to move

Tesla to Texas and ask its stockholders to ratify his judicially rejected compensation

package. Third, more than half of the Board remains beholden to Musk. See

¶¶103–137, infra.

19. Musk oversees at least six significant companies, including Tesla.

Since May 2002, Musk has served as CEO, Chief Technology Officer and Chairman

of Space Exploration Technologies Corporation (“SpaceX”), a private space

exploration company. Musk also runs Neuralink (which aims to plant microchips

in human brains), The Boring Company (a tunneling business), X (formerly

Twitter), and xAI. Musk also served as Chairman of SolarCity Corporation

(“SolarCity”) from July 2006 until Tesla acquired it in 2016.

20. Defendant Robyn M. Denholm has been a member of the Tesla Board

since August 2014 and has served as the Chair of Tesla’s Board since November

2018. Denholm is also the Chair of the Audit Committee and the Disclosure

Controls Committee, and serves as a member of Tesla’s Compensation Committee

20
Form DEF14A at 151 (April 29, 2024), https://www.sec.gov/ix?doc=/Archives/ed
gar/data/1318605/000110465924053333/tm2326076d15_def14a.htm.
21
Tornetta, 310 A.3d at 504.

–9–
and Nominating and Governance Committee. Prior to becoming the chairperson of

Tesla, she served as the COO of Telstra Corporation Ltd. (“Telstra”), where in 2017

she earned a comparatively modest $890,006 in total compensation. Denholm

resigned from Telstra in connection with assuming the mantle of chairperson from

Musk. Since January 2021, Denholm has been an operating partner of Blackbird

Ventures, a venture capital firm. She is also the Inaugural Chair of the Technology

Council of Australia.

21. Defendant Kimbal Musk is Musk’s brother and has been a member

of the Tesla Board since 2004. Kimbal served as a Director of SpaceX since its

founding in 2002 through January 2022.

22. Defendant Ira Ehrenpreis has been a member of the Tesla Board

since May 2007 and is the Chair of Tesla’s Compensation Committee. Since 2014,

Ehrenpreis has also been a Managing Partner and co-owner of venture capital firm

DBL Partners, which he co-founded with fellow managing partner and co-owner

Nancy Pfund (“Pfund”), and is a manager of DBL Partners Fund III (“DBL III”).

Both Ehrenpreis and DBL III are investors in SpaceX. Ehrenpreis is an investor

and member of the board of directors of Mapbox, Inc.

23. Defendant Joe Gebbia has been a member of the Tesla Board since

2022 and is a member of Tesla’s Audit Committee. Gebbia also co-founded Airbnb

in 2008 and has served on Airbnb’s board of directors since 2009.

– 10 –
 24. Defendant Kathleen Wilson-Thompson has been a member of the

Tesla Board since December 2018. Wilson-Thompson is a member of Tesla’s

Nominating and Governance Committee, Compensation Committee, and

Disclosure Controls Committee. From December 2014 to January 2021, she served

as the Executive Vice President and Global Chief Human Resources Officer of

Walgreens Boots Alliance, Inc. On information and belief, Wilson-Thompson does

not have any employment other than service on other company boards.

25. Defendant James Murdoch has been a member of the Tesla Board

since July 2017. Murdoch is also a member of Tesla’s Nominating and Governance

Committee, Audit Committee, and Disclosure Controls Committee. Since March

2019, Murdoch has also been the Chief Executive Officer of Lupa Systems, a

private investment company that he founded.

26. Defendant JB Straubel has been a member of the Tesla Board since

May 2023. Straubel co-founded the Company and served as Tesla’s CTO from May

2005 to July 2019. Straubel also previously served on the board of SolarCity

Corporation and as a member of its Nominating and Corporate Governance

Committee from August 2006 until its acquisition by Tesla in November 2016.

27. The defendants identified in ¶¶17–26 are referred to collectively herein

as the “Individual Defendants.” The Individual Defendants constituted the entirety

of the Tesla Board at the time of the challenged conduct and continue to constitute

– 11 –
the entirety of the Tesla Board at present. They are also referred to collectively

herein as the “Board.” The Individual Defendants, excluding Elon Musk, are

referred to as the “Director Defendants.”

28. Nominal Defendant Tesla, Inc. is a Delaware corporation

headquartered in Austin, Texas. Its stock trades on the NASDAQ Global Select

Market under the ticker symbol “TSLA.” According to Musk, “Tesla is an

AI/robotics company that appears to many to be a car company,” 22 and “the biggest

AI project on earth.”23 Tesla was founded in 2003, and the Company debuted its

first product, the Roadster sports car, in 2008, followed by the Model S sedan in

2012, and the Model X SUV in 2015. It continues to design, develop, manufacture,

and sell high-performance fully-electric vehicles and energy storage products.

Tesla also produces three energy storage products—the Powerwall home battery,

the Powerpack commercial-scale battery, and Megapack, for utility-scale

installations—and describes itself as “the world’s first vertically-integrated

sustainable energy company with the acquisition of SolarCity, the leading provider

of solar power systems in the United States.” As described herein, Tesla has

22
Elon Musk (@elonmusk), X (Jan. 3, 2024 12:51am), https://x.com/elonmusk/status/
1742423298217033776.
23
Elon Musk (@elonmusk), X (Apr. 27, 2024 8:13pm), https://x.com/elonmusk/status/
1784375472887066653.

– 12 –
increasingly focused on AI as a fundamental part of its business. For example, it is

developing self-driving automobiles and a humanoid robot known as Optimus.

29. Non-Party X.AI Corp. is a Nevada corporation headquartered in San

Francisco, California. xAI is a startup working in the area of AI and was founded

by Musk in March 2023.

SUBSTANTIVE ALLEGATIONS

A. For Years, Musk and Tesla Consistently Tout AI As The Key To The
Company’s Future

30. In February 2004, Musk became Tesla’s largest stockholder through a

funding round and joined the Company; he was named CEO in 2008. In its early

years, Tesla was primarily focused on designing and manufacturing fully electric

vehicles and electric vehicle powertrain components. Since its IPO in 2010, Tesla’s

stock has risen significantly, fueled by Musk’s ambitions to build Tesla into a

company focused on much more than just electric vehicles. During the years since

its IPO, Tesla has expanded into solar energy systems, battery technology for

buildings and homes, and AI technology—with a particular focus on AI-enabled

autonomous vehicles.

31. In 2020, Tesla became the world’s most valuable “automobile

company” and the first to be valued at more than $1 trillion. Telsa achieved this

– 13 –
outsized valuation because the Company’s investors treated it as a technology and

AI company, not an automobile company.

32. Musk has had a longstanding interest in AI. In his biography of Musk,

Walter Isaacson wrote that, in 2015, Musk:

realized that success in the field of artificial intelligence would come

from having access to huge amounts of real-world data that the bots
could learn from. One such gold mine, he realized at the time, was
Tesla, which collected millions of frames of video each day of drivers
handling different situations. ‘Probably Tesla will have more real-
world data than any other company in the world,’ he said.24

33. For many years, Musk and Tesla have touted AI as the key to the

Company’s future. In 2016, Musk described a future in which Tesla’s vehicles

would be fully autonomous, evolving out of the Company’s Autopilot driver-

assistance software—an endeavor that is only possible through sophisticated AI

technology. Isaacson described a moment in March 2019, as Tesla was rapidly

ramping up production and in “Production Hell,” when Musk was worried about

the Company’s survival: “He needed to come up with a grand idea that would turn

the narrative around and convince investors that Tesla would become the world’s

most valuable car company.” That idea was full autonomy, which he demonstrated

to the world on “Autonomy Day” in April 2019 with an autonomous Tesla that

drove around Tesla’s headquarters, drove onto the highway, and made seven

24
Walter Isaacson, Elon Musk, 243 (Simon & Schuster, 2023) (“Isaacson”).

– 14 –
difficult turns. While the reception to Autonomy Day was mixed, Isaacson wrote,

“[U]nderneath Musk’s hype and willful fantasy was a vision that he remained

convinced would, like reusable rockets, someday transform our lives.” 25

34. In Tesla’s 2019 10-K, filed on February 13, 2020, it began disclosing

AI as a key component of the Company’s future:

We believe that a key factor in our success will be our Autopilot and
FSD technologies that currently enable the driver-assistance features
in our vehicles, and in which we are making significant strides through
our proprietary and powerful FSD computer and remotely updateable
artificial intelligence software. Ultimately, while we are subject to
regulatory constraints over which we have no control, our goal is a
fully autonomously-driven future that improves safety and provides
our customers with convenience and additional income through
participation in an autonomous Tesla ride-hailing network. This
network, which will also include our own fleet of vehicles, will also
allow us to access a new customer base even as modes of transportation
evolve.26

Tesla has continued to tout its plans for an AI-based autonomous ride-hailing

network (which it calls “Robotaxis”). The Airbnb-like service would allow Tesla

owners to operate their vehicles as self-driving taxis when they are not personally

using them, paying upfront or annual fees to the Company to access the Robotaxi

software. AI would be essential to these plans.

25
Id. at 332–334.
26

Form 10-K at 13 (Feb. 13, 2020) https://www.sec.gov/ix?doc=/Archives/edgar/data/000

1318605/000156459020004475/tsla-10k_20191231.htm

– 15 –
 35. After a year of disappointing stock performance for Tesla, in April

2023, Musk doubled down on AI as the engine for Tesla’s growth. In an analyst

call, Musk told investors that the Company’s future relied on AI software for

autonomous driving, stating: “We do believe we’re . . . laying the groundwork here,

and that it’s better to ship a large number of cars at a lower margin, and,

subsequently, harvest that margin in the future as we perfect autonomy.” That July,

Musk said, “In the long-term, autonomy is going to just drive [sales] volume

through the ceiling next level. And our Robotaxi products have quasi-infinite

demand.” Investors bought into that vision, with Tesla shares more than doubling

in 2023. Internally, Musk said at a weekly Robotaxi meeting, “This will be a

historically mega-revolutionary product. It will transform everything. This is the

product that makes Tesla a ten-trillion company. People will be talking about this

moment in a hundred years.”27

36. The Company’s SEC filings confirmed Tesla’s commitment to AI. In

a section titled “Self-Driving and Artificial Intelligence,” Tesla’s 2022 10-K, filed

on January 31, 2023, stated: “We are also applying our artificial intelligence

learnings from self-driving technology to the field of robotics. For example, in 2022

we previewed Optimus, a robotic humanoid which is controlled by the same AI

27
Isaacson. at 503.

– 16 –
system.” The 10-K further stated: “We are increasingly focused on products and

services based on artificial intelligence, robotics and automation.”28

37. Musk continued to link Tesla’s fortunes to AI throughout 2023. At

Tesla’s annual general meeting in May, he stated:

I think Tesla’s going to play an important role in AI and AGI [artificial

general intelligence], and I think I need to oversee that to make sure
it’s good. That’s a thorny problem if there ever was one...Very few
people, even in the AI community…appreciate just how much
capability Tesla has in AI. It’s by far the most advanced real-world
AI. There’s no one even close.

38. In 2023, at the World Artificial intelligence Conference in Shanghai,

Tesla presented a prototype of Optimus, Tesla’s humanoid robot. Musk said that

Tesla was working to develop Optimus using the technology behind its driverless

cars, telling analysts in January 2024 that the project was “an extremely

revolutionary product and something that I think has the potential to far exceed the

value of everything else at Tesla combined.”

39. Over the last several years, Tesla has been building one of the world’s

largest supercomputers, called “Dojo,” which will be used to process reams of video

data from its vehicles to train AI systems for its cars and for the Optimus robot. In

2024, Tesla will spend $10 billion on AI, including $1 billion on Dojo. “Tesla will

28
Form 10-K at 32 (Jan. 31, 2020), https://www.sec.gov/ix?doc=/Archives/edgar/data/00
01318605/000095017023001409/tsla-20221231.htm.

– 17 –
spend more than that on Nvidia hardware this year,” Musk stated in January 2024.

“The table stakes for being competitive in AI are at least several billion dollars per

year at this point.”29

40. Tesla’s AI expenditures include substantial hardware purchases from

Nvidia. In August 2023, Tesla engineer Tim Zaman revealed in a Tweet that Tesla

would be launching a $300 million AI computing cluster, which would employ

10,000 Nvidia H100 GPUs and be more powerful than the world’s third highest-

performing supercomputer. “We’ll actually take the hardware as fast as Nvidia will

deliver it to us,” Musk previously said. “If they could deliver us enough GPUs, we

might not need Dojo, but they can’t because they’ve got so many customers.” An

Oppenheimer analyst stated: “Tesla is significantly enhancing its computing

capabilities to train its full self-driving technology faster,” a move that would

accelerate its planned Robotaxi business.30

41. Musk explained on Tesla’s January 24, 2024 earnings call that the

technologies developed for Tesla’s self-driving software—and the data collected by

Teslas on the road—were translatable into other realms:

29
Elon Musk (@elonmusk), X (Jan. 26, 2024 4:39pm), https://x.com/elonmusk/status/
1750997027922567324.
30
Al Root, Tesla’s New Supercomputer Accelerates Its Ambition to Be an AI Play
Alongside Nvidia, BARRON’S (Aug. 29, 2023), https://www.barrons.com/articles/tesla-
nvidia-stock-ai-computer-ev-self-driving-119dc165.

– 18 –
 And the technologies that we’re—the AI technologies we developed
for the car translate quite well to a humanoid robot because the car is
just a robot on four wheels. Tesla is arguably already the biggest robot
maker in the world. It’s just a four-wheeled robot. So, Optimus is a
robot with—a humanoid robot with arms and legs. It’s by far the most
sophisticated humanoid robot that’s being developed anywhere in the
world.

42. In April 2024, Musk announced an August 2024 launch of Tesla’s

long-gestating Robotaxi business, which will rely on Tesla’s AI-based Full Self-

Driving Technology. He also said he wanted to harness the AI computational power

of Tesla vehicles when they are not on the road. “It would seem like a waste not to

use it,” he said, adding that this could become the biggest part of the automaker’s

business, like Amazon’s web service, AWS.31

43. In addition to the statements above, Musk and others at Tesla have

consistently emphasized, in analyst calls and elsewhere, that Tesla is as much an AI

company as it is a car company:

 April 26, 2021, earnings call: “[R]ight now people think of Tesla as—
a lot of people think Tesla is a car company, or perhaps an energy
company. I think long term people will think of Tesla as much as an
AI robotics company as we are a car company or an energy company.
I think we are developing one of the strongest hardware and software
AI teams in the world.”

 August 19, 2021, Tesla AI Day: “[W]hat we want to show today is

that Tesla is much more than an electric car company, that we have
deep AI activity in hardware, on the inference level, on the training

31
Todd Lassa, Would You Loan Out Your Tesla Like an Airbnb? AUTOWEEK (Apr. 24,
2024), https://www.autoweek.com/news/a60593652/elon-musk-tesla-fsd-like-airbnb/.

– 19 –
 level, and basically, I think we’re, I think, arguably the leaders in real-
world AI as it applies to real-world.”

 October 7, 2021, Tesla Annual General Meeting: “And then AI Day,

I think it was important to change the fundamental perception of Tesla
because people did—they sort of think of Tesla as a car company and
yes, we made cars. But the AI part of Tesla was not well understood.
Tesla is as much a software company as it is a hardware company and
we also do the chips.”

 August 4, 2022, Tesla Annual General Meeting: “And I definitely

want people out there, channels of people who are working on AI to
consider working at Tesla because I think we’re solving just a very
important part of AI and one that can ultimately save millions of lives
and prevent tens of millions of serious injuries by driving just an order
of magnitude safer than people.”

 October 18, 2022, Tesla AI Day: “We really wanted to show the depth
and breadth of Tesla in artificial intelligence, computer hardware,
robotics actuators, and try to really shift the perception of the company
away from a lot of people think we’re like just a car company or we
make cool cars, whatever, but they don’t have have—most people
have no idea that Tesla is arguably the leader in real world AI
hardware and software and that we’re building what is arguably the
first—the most radical computer architecture since the Cray-1
supercomputer.”

 October 19, 2022, earnings call: “Our goal with that AI Day was
recruiting, and we’re seeing a massive influx of world-class artificial
intelligence engineer and scientist resumes. So, it generated a
tremendous amount of interest from some of the best AI researchers in
the world. I can’t emphasize the importance of this enough, because I
think it finally has become clear to the smartest AI technologists in the
world that Tesla is among the very best.”

 January 25, 2023, earnings call: “I think something that still a lot of
people out there don’t quite appreciate is that Tesla – of course, I like
Tesla as much a software company as a hardware company, but Tesla
is really one of the world’s leading AI companies. ... [W]e’re seeing

– 20 –
 just a lot of world-class AI talent join the company. There’s also the
long-term potential of Optimus, where we’re able to use our expertise
in electric motors and electronics, batteries and advanced
manufacturing to be able to make a humanoid robot that is actually
useful and can be made in high volume with exceptional capabilities
because of the Autopilot AI that where we take the—because the car
is like a robot on four wheels and the Optimus is a robot on legs. But
the—as we get closer and closer to solving real-world AI, and we don't
see anyone even close to us in achieving this. ... [T]his is the thing that
has order of magnitude potential market cap improvement for Tesla.”

 March 1, 2023, Tesla Investor Day: “So as we solve real world AI, I
don’t think there’s anyone even close to Tesla on solving real world
AI. That same computer and software goes into Optimus.”

 July 19, 2023, earnings call: “So the success in AI endeavors is a

function of talent, sort of unique data and computing resources, and we
have outstanding capabilities [in] all three arenas. And I really just
don’t know how anyone could do what we’re doing, even if they had
our software and had our computer if they did not have the training
data. ... Tesla is clearly at the cutting edge of AI development.”

Zachary Kirkhorn (former Chief Financial Officer): “[T]he single most

important priority is to ensure we are continuing to invest heavily in
the core technologies that will drive the long-term value of the
business. This includes increasing spending on AI-related
technologies such as Full Self-Driving, Optimus and Dojo.”

 October 18, 2023, earnings call: “We remain focused on three main
objectives, which is the cost reductions of our products, investments in
artificial intelligence and other growth projects like Optimus, and
continued free cash flow generation. ... We’ll continue to invest
significantly in AI development, as this is really the massive game
changer. And I mean, success in this regard in the long term, I think,
has the potential to make Tesla the most valuable company in the world
by far.…The Tesla AI team is, I think, one of the world’s best, and I
think it is actually by far the world’s best when it comes to real-world
AI. I’ll say that again, Tesla has the best real-world AI team on earth,
period, and it’s getting better.”

– 21 –
  January 24, 2024, earnings call: “I think Tesla’s probably the most
efficient company in the world for AI inference….I see a path to
creating an artificial intelligence and robotics juggernaut of truly
immense capability and power….[P]eople think of Tesla as a car
company when they should be thinking of Tesla as an AI/robotics
company.”

 April 23, 2024, earnings call: “I think [technology investor] Cathie

Wood said it best like really we should be thought of as an AI robotics
company. If you value Tesla just like an auto company, you would just
have to—fundamentally, it’s just the wrong framework.”

44. Musk has also repeatedly posted about Tesla’s position as a leading AI

company on X:

– 22 –
– 23 –
 B. Musk Attempts to Merge OpenAI and Tesla, Then Resigns From
OpenAI Because Of The Conflict Created By His Simultaneous
Stewardship of Two AI Companies

45. Musk’s history with the prominent AI company OpenAI demonstrates

his recognition that Tesla’s AI efforts and ambitions create a conflict precluding

him from simultaneously leading a separate general-purpose AI company.

46. In 2015, Musk, along with other prominent Silicon Valley investors

and technology companies, established OpenAI as an AI research center to develop

“digital intelligence” to benefit humanity. Musk and his co-investors purportedly

planned to commit $1 billion to the project long term, with OpenAI set up as a

nonprofit that would “open source” all its research (i.e. share its underlying software

– 24 –
code with the public). In order to attract engineers, Musk unilaterally decided

OpenAI should offer recruits equity in Tesla and SpaceX. 32

47. As Tesla increased its own focus on AI, Musk’s simultaneous

involvement with OpenAI created a clear conflict. Musk initially attempted to

resolve his conflict by causing Tesla to acquire OpenAI—notably demonstrating

his understanding that a general-purpose AI research and development company

like OpenAI was within the scope of Tesla’s business ambitions and that Tesla had

the capability to acquire and operate such a business. Musk’s fellow OpenAI

directors, however, rejected his proposal for a merger between OpenAI and Tesla.33

48. With his proposed acquisition blocked, Musk resigned from OpenAI’s

board in February 2018, recognizing the conflict inherent in his dual roles at Tesla

and OpenAI.34 Indeed, by that time, Tesla was already building its own AI project,

Autopilot, and Musk had poached a key OpenAI employee. Sam Altman, OpenAI’s

32
Berber Jin et al., How the Bromance Between Elon Musk and Sam Altman Turned Toxic,
WALL ST. J. (Mar. 6, 2024), https://www.wsj.com/tech/ai/elon-musk-sam-altman-openai-
lawsuit-8e6f1897.
33
See Cade Metz, OpenAI Says Elon Musk Tried to Merge It With Tesla, N.Y. TIMES (Mar.
5, 2024), https://www.nytimes.com/2024/03/05/technology/openai-elon-musk-tesla.html.
34
Cade Metz et al., Elon Musk Ramps Up A.I. Efforts, Even as He Warns of Dangers, N.Y.
TIMES (Apr. 27, 2023), https://www.nytimes.com/2023/04/27/technology/elon-musk-ai-
openai.html.

– 25 –
CEO recalled: “We realized that Tesla was going to become an AI company and

would be competing for the same talent as OpenAI.”35

49. Upon Musk’s resignation from the OpenAI board in February 2018,

OpenAI published a blog post stating: “As Tesla continues to become more focused

on AI, this will eliminate a potential future conflict for Elon.”36

50. In February 2019, Musk acknowledged that he left partly because

“Tesla was competing for some of the same people as OpenAI[.]”37

C. Musk Becomes “Uncomfortable Growing Tesla To Be a Leader in AI

& Robotics Without Having ~25% Voting Control” and Develops a
“Prefer[ence] to Build [AI] Products Outside of Tesla.”

51. Musk’s history with OpenAI demonstrates that, at least as of 2018, he

viewed Tesla as his priority and was prepared to resolve potential conflicts of

interest created by his other business endeavors in favor of Tesla. As Musk’s equity

ownership and voting power in Tesla declined, however, his priorities changed.

35
Isaacson, 244. After OpenAI accepted a major investment from Microsoft, Musk called
AI “the most powerful tool that mankind has ever created” and lamented that it was “now
in the hands of a ruthless corporate monopoly.” Id. at 602.
36
Fred Lambert, Elon Musk leaves Open AI’s board due to potential conflict with Tesla’s
own AI effort, ELECTREK (Feb. 21, 2018), https://electrek.co/2018/02/21/elon-musk-leaves-
open-ai-tesla-ai-effort/.
37
Elon Musk (@elonmusk), X (Feb. 16, 2019 11:27pm), https://x.com/elonmusk/
status/1096989482094518273.

– 26 –
 52. As of 2018, Musk directly held approximately 21% of Tesla’s stock

and voting power. During 2021 and 2022, however, Musk sold more than $39

billion worth of his Tesla shares to cover taxes and help fund his purchase of

Twitter. As a result, his direct holdings in Tesla (excluding options) fell to 13%.

53. Musk’s diminished interest in Tesla frustrated him and apparently

affected his commitment to develop AI products inside of Tesla. Musk made this

clear on January 15, 2024, when he made the following remarkable post on X:

54. In other words, Musk publicly threatened that he would divert

corporate opportunities away from Tesla unless Tesla gave him substantial

additional equity. The market clearly recognized this threat.

55. A Wall Street Journal columnist stated, “In essence, he wants to get

paid a second time for AI promises that he’s been selling to Tesla investors for years

– 27 –
and that are already embodied in its share price. . . . [H]e wants to be compensated

all over again for the magic beans he has yet to deliver.” 38

56. Tesla’s stock price is closely tied to AI and the Company’s

autonomous driving ambitions. In January 2024, Morgan Stanley analyst Adam

Jonas attributed 22% of his price target for Tesla’s stock to the future value created

by an autonomous car fleet of about 220,000 vehicles by 2030. But after Musk’s

comment on X, he pulled back his expectations, stating, “Tesla is the only truly AI-

enabling stock under our coverage. Any change of organizational or legal structure

that impedes Tesla’s ability to participate in the development of AI could be

detrimental to the . . . investment thesis.”39 Other analysts agree that Tesla’s

software and AI capabilities are key to the “long-term bull thesis” for the

company.40

38
Holman W. Jenkins, Jr., Lovable Elon Pulls a Fast One, WALL ST. J. (Jan. 19, 2024),
https://www.wsj.com/articles/lovable-elon-pulls-a-fast-one-compensation-artificial-
intelligence-x-post-bec08f67.
39
Tim Higgins, Tesla Was Once About Climate Change, Driverless Cars, AI. Now What?,
WALL ST. J. (Feb. 10, 2024), https://www.wsj.com/business/autos/tesla-has-long-been-a-
hope-stock-but-what-are-investors-hoping-for-now-7031171f.
40
Alan Ohnsman, Elon Musk’s Plan to Tout Tesla AI Comes As Tougher Scrutiny of the
Company Looms, FORBES (Aug. 18, 2021),
https://www.forbes.com/sites/alanohnsman/2021/08/18/elon-musks-plan-to-tout-tesla-ai-
comes-as-tougher-scrutiny-of-the-company-looms/.

– 28 –
 57. The post irked several longstanding Tesla investors, including the

company’s largest retail shareholder, Leo Koguan, and investment manager Ross

Gerber of Gerber Kawasaki, who characterized Musk’s demand as “blackmail.” 41

In the days following the tweet, Tesla’s stock price fell approximately 3%.

D. Acting On His Preference to “Build [AI] Products Outside of Tesla,”

Musk Founds xAI and Begins Redirecting Scarce AI Resources From
Tesla to xAI

58. Musk’s January 2024 post on X was not an idle threat. By the time of

that post, consistent with his newfound discomfort with “growing Tesla to be a

leader in AI,” Musk had already founded a new startup AI company that would

enable him to “build [AI] products outside of Tesla.” Specifically, in March 2023,

Musk founded xAI as a separate independent entity. 42

59. Musk admitted he was inspired to establish that venture shortly after

the launches of Microsoft-backed OpenAI’s ChatGPT-4 and Google’s Bard chatbot

products, which set the stage for a two-way “competition between OpenAI-

41
Lora Kolodny, Elon Musk ordered Nvidia to ship thousands of AI chips reserved to X
and xAI, CNBC (Jun. 4, 2024), https://www.cnbc.com/2024/06/04/elon-musk-told-nvidia-
to-ship-ai-chips-reserved-for-tesla-to-x-xai.html.
42
Madhumita Murgia et al., Elon Musk Plans Artificial Intelligence Start-Up to Rival
OpenAI, FIN. TIMES (Apr. 14, 2023), https://www.ft.com/content/2a96995b-c799-4281-
8b60-b235e84aefe4.

– 29 –
Microsoft and DeepMind-Google to create products that could chat with humans in

a natural way and perform an endless array of text-based intellectual tasks.” 43

60. That worried Musk. He did not trust Microsoft and Google to nurture

products free of “political[] indoctrinat[ion]” and infection from the “woke mind

virus.”44 He also worried that “self-learning AI systems might turn hostile to the

human species.”45 He determined that “[t]he two-way competition between OpenAI

and Google needed . . . a third gladiator, one that would focus on AI safety and

preserving humanity.”46 Musk explained to Isaacson that focusing on xAI was

among the best uses of his time:

With AI coming around, I’m sort of wondering whether it’s worth

spending that much time thinking about Twitter. Sure, I could
probably make it the biggest financial institution in the world. But I
have only so many brain cycles and hours in the day. I mean, it’s not
like I need to be richer or something. So what should my time be spent
on? Getting Starship launched. Getting to Mars is now far more
pressing. Also, I need to focus on making AI safe. That’s why I’m
starting an AI company.47

61. That xAI was founded as a direct response to OpenAI’s success, and

with the express intent of competing with OpenAI, was significant. Musk had

43
Isaacson at 601.
44
Id.
45
Id.
46
Id.
47
Musk quoted in Isaacson, at 604–05.

– 30 –
previously recognized that his simultaneous service at the helm of Tesla and

OpenAI created a conflict. Now, he was content to lead what amounted to an

OpenAI clone notwithstanding his duties to Tesla. What changed? Musk’s January

2024 post on X resolves any mystery: based on his own unique personal interests,

he had become “uncomfortable growing Tesla to be a leader in AI” and developed

a “prefer[ence] to build [AI] products outside of Tesla.”

62. At the time of its founding, Musk was xAI’s CEO and sole initial

director; thereafter, he quickly began recruiting other investors and engineers. 48

Musk claimed he needed to establish xAI as a separate company because the AI

“frenzy” made recruiting a challenge and, according to Musk, “[i]t w[ould] be easier

to get [AI engineers] if they c[ould] become founders of a new company and get

equity in it.”49 According to the Financial Times, Musk had already secured

thousands of high-powered GPU processors from Nvidia that were required to build

48
Madhumita Murgia et al., Elon Musk Plans Artificial Intelligence Start-Up to Rival
OpenAI, FIN. TIMES (Apr. 14, 2023), https://www.ft.com/content/2a96995b-c799-4281-8b
60-b235e84aefe4. By that point he was now running six companies simultaneously—
“three times as many as Steve Jobs (Apple, Pixar) at his peak,” per Isaacson. Isaacson at
605.
49
Isaacson at 605.

– 31 –
out AI capabilities and intended to “tap Tesla for computing resources.” 50 Musk

also publicly confirmed that both X and Tesla were also buying GPU processors. 51

Nvidia’s processors are generally in short supply and companies compete fiercely

to secure deliveries.52 Thus, from even before its inception, xAI (and X) has been

a direct competitor with Tesla.

63. Musk knew that “he was starting off way behind OpenAI in creating a

chatbot that could give natural-language responses to questions[.]” “But Tesla’s

work on self-driving cars and Optimus the robot put it way ahead in creating the

type of AI needed to navigate in the physical world. This meant that his engineers

were actually ahead of OpenAI in creating full-fledged artificial general

intelligence, which requires both abilities.” 53 These were Tesla’s engineers—not

xAI’s—yet Musk treated them as one and the same. On information and belief, xAI

is using both Tesla’s engineering and data to bridge the gap with its competitors.

50
Madhumita Murgia et al., Elon Musk Plans Artificial Intelligence Start-Up to Rival
OpenAI, FIN. TIMES (Apr. 14, 2023), https://www.ft.com/content/2a96995b-c799-4281-8b
60-b235e84aefe4.
51
Id.
52
Paresh Dave, Nvidia Chip Shortages Leave AI Startups Scrambling for Computing
Power, WIRED (Aug. 24, 2023), https://www.wired.com/story/nvidia-chip-shortages-
leave-ai-startups-scrambling-for-computing-power/.
53
Isaacson at 605.

– 32 –
Had Musk not improperly diverted Tesla resources to xAI, it would have taken years

before xAI would launch its first chatbot—not mere months.

64. Development of AI depends on data, and Musk has two sources of data

at his disposal—X and Tesla.54 Tesla’s “data trove” was “160 billion frames per

day of video that Tesla received and processed from the cameras on its cars. This

data was different from the text-based documents that informed chatbots. It was

video data of humans navigating in real-world situations. It could help create AI

for physical robots, not just text-generating chatbots.”55

65. Tesla’s AI technology and related data were uniquely valuable and

distinguished it from its competitors. Indeed, “[t]he holy grail of artificial general

intelligence was building machines that could operate like humans in physical

spaces, such as factories and offices and on the surface of Mars, not just wow us

with disembodied chatting. Tesla and Twitter together could provide the data sets

and the processing capability for both approaches: teaching machines to navigate in

physical space and to answer questions in natural language.” 56

54
Id. at 602.
55
Id. at 603.
56
Id.

– 33 –
 66. “Tesla’s real-world AI is underrated,” Musk told Isaacson. “Imagine

if Tesla and OpenAI had to swap tasks. They would have to make Self-Driving,

and we would have to make large language-model chatbots. Who wins? We do.”57

67. Musk publicly launched xAI in July 2023 with eleven engineers under

his leadership.58 Musk poached one, Ross Nordeen, directly from Tesla, where he

was a technical program manager in the supercomputing and machine learning

division.59 At the time, Musk stated xAI’s “current legal department is 0.” 60

68. According to its initial website, xAI had the purported mission “to

understand the true nature of the universe” and would work closely with both Tesla

57
Id. at 605.
58
Anirban Ghoshal, Elon Musk Launches xAI to Take on ChatGPT-maker OpenAI,
COMPUTERWORLD (July 13, 2023), https://www.computerworld.com/article/1631425/
elon-musk-launches-xai-to-take-on-chatgpt-maker-openai.html.
59
Sissi Cao, Elon Musk Announces xAI: Who’s On the 12-Man Founding Team?,
OBSERVER (July 12, 2023), https://observer.com/2023/07/elon-musk-launches-xai/ It was
not the first time Musk ransacked Telsa for engineering talent. He detailed more than fifty
Tesla engineers from the assisted driving program to Twitter soon after he acquired it in
2022. Victor Tangermann, Elon Musk Pulling Engineers From Tesla Autopilot to Work
on Twitter, FUTURISM (Nov. 1, 2022), https://futurism.com/elon-musk-engineers-tesla-
autopilot-twitter; Tornetta, 310 A.3d at 506. “Similarly, in 2020, Musk directed Tesla
management to send Tesla’s ‘smartest micro grid designer [ ] with a bunch of Powerpacks
to [SpaceX][.]’” Id. (alterations in original).
60
Ben Schreckinger, Elon Musk’s Liberal-Trolling AI Plan Has a Core Audience,
POLITICO (July 17, 2023), https://www.politico.com/news/2023/07/17/ai-musk-chatgpt-
xai-00106672.

– 34 –
and X.61 xAI’s current website states that it is “working on building artificial

intelligence to accelerate human scientific discovery. We are guided by our mission

to advance our collective understanding of the universe.” 62

69. In November 2023, xAI launched Grok, its first generative AI chatbot

and offered it to certain X users.63 Around the same time, Musk announced that X

investors, not Tesla investors, will own 25% of xAI:

70. The following month, December 2023, Musk ordered Nvidia to

redirect a swath of AI processors initially earmarked for Tesla to X and xAI,

kneecapping Tesla’s ability to advance in AI in favor of his closely held company.

71. According to an internal Nvidia memo, “Elon [was] prioritizing X

H100 GPU cluster deployment at X versus Tesla by redirecting 12k of shipped

61
Anirban Ghoshal, Elon Musk Launches xAI to Take on ChatGPT-maker OpenAI,
COMPUTERWORLD (July 13, 2023), https://www.computerworld.com/article/1631425/
elon-musk-launches-xai-to-take-on-chatgpt-maker-openai.html.
62
X.ai, https://x.ai/about.
63
Paul Hill, Elon Musk Gives a Glimpse at xAI’s Grok Chatbot, NEOWIN (Nov. 4, 2023),
https://www.neowin.net/news/elon-musk-gives-a-glimpse-at-xais-grok-chatbot/.

– 35 –
H100 GPUs originally slated for Tesla to X instead …. In exchange, original X

orders of 12k H100 slated for Jan and June to be redirected to Tesla.” 64

72. As CNBC later explained, “By ordering Nvidia to let privately held X

jump the line ahead of Tesla, Musk pushed back the automaker’s receipt of more

than $500 million in graphics processing units, or GPUs, by months, likely adding

to delays in setting up the supercomputers Tesla says it needs to develop

autonomous vehicles and humanoid robots.”65 A former Tesla supply chain analyst

told CNBC that the redirected shipment was “extreme, given the scarcity of

Nvidia’s technology.”66 For his part, Musk dubiously claimed in a post on X

following the publication of the CNBC report that, contrary to his prior public

representations about Tesla’s appetite for Nvidia hardware, “Tesla had no place to

send the Nvidia chips to turn them on, so they would have just sat in a warehouse.” 67

73. All the while, despite xAI’s December 5, 2023 disclosure in an SEC

filing that it had already raised $135 million from investors and was seeking to raise

64
Lora Kolodny, Elon Musk Ordered Nvidia to Ship Thousands of AI Chips Reserved for
Tesla to X and xAI, CNBC (June 4, 2024), https://www.cnbc.com/2024/06/04/elon-musk-
told-nvidia-to-ship-ai-chips-reserved-for-tesla-to-x-xai.html.
65
Id.
66
Id.
67
Elon Musk (@elonmusk), X (June 4, 2024 11:03am), https://x.com/elonmusk/status/
1798007748728365503.

– 36 –
a total of $1 billion,68 Musk claimed the next day that xAI was not raising money

“right now”:

74. On December 5, 2023, after an X user posted an article reporting that

OpenAI co-founder Ilya Suskever had become “invisible at the company, with his

68
X.ai Corp., Notice of Exempt Offering of Securities (Form D) (Dec. 5, 2023),
https://www.sec.gov/Archives/edgar/data/2002695/000200269523000002/xslFormDX01/
primary_doc.xml.

– 37 –
future uncertain,” and suggested that he “come work at Tesla,” Musk replied, “Or

xAI,” suggesting his preferred destination for AI talent: 69

69
Elon Musk (@elonmusk), X (Dec. 9, 2023 4:19am), https://x.com/elonmusk/status/
1733416090439451114.

– 38 –
– 39 –
 75. On January 6, 2024, in response to news reports, Musk again publicly

proclaimed that “xAI is not raising capital and I have had no conversations with

anyone in this regard.”70

E. After This Court Rescinds Musk’s Pay Package and Reduces His
Stake in Tesla, Musk Accelerates the Growth of xAI, Raising Billions
of Dollars and Poaching at Least Eleven Employees From Tesla

76. On January 30, 2024, the Court of Chancery issued a post-trial opinion

in Tornetta v. Musk, in which it held that Musk’s 2018 compensation package was

unfair to Tesla and ordered that it be rescinded.71 Without the rescinded options,

Musk’s beneficial ownership of Tesla dropped from approximately 21% to

approximately 13%. Musk, therefore, no longer had close to the voting power over

Tesla that he asserted he needed in order to be comfortable growing Tesla into an

AI leader. After the Tornetta ruling, Musk accelerated his efforts to grow xAI.

77. In March 2024, Musk began discussions with the City of Memphis to

build a supercomputer there to support xAI’s operations.72 Later that month, xAI

announced the introduction of Grok-1.5, xAI’s latest AI model capable of long

70
Elon Musk (@elonmusk), X (Jan. 26, 2024 4:33pm), https://x.com/elonmusk/status/
1750995501560807465.
71
310 A.3d at 445.
72
Meghan Bobrowsky & Berber Jin, Elon Musk’s xAI Plans to Build Supercomputer in
Memphis, WALL ST. J. (June 5, 2024), https://www.wsj.com/tech/ai/elon-musks-xai-plans-
to-build-supercomputer-in-memphis-ecee78fb.

– 40 –
context understanding and advanced reasoning.73 On April 12, 2024, xAI

announced the introduction of Grok-1.5V, a multimodal model that processes visual

information in addition to text.74

78. Meanwhile, xAI pillaged talent from Tesla. xAI currently has at least

eleven employees who joined directly from Tesla. The most significant—Ethan

Knight, who led Tesla’s computer vision team—was hired in March 2024, when he

became the “third Tesla engineer to leave the car company for xAI, the startup’s

website shows.”75 Musk claimed that “Ethan was going to join OpenAI … so it

was either xAI or them.”76 But he did not explain why Tesla could not persuade

Knight to stay, or why xAI was not a part of Tesla to begin with. When noted “reply

guy” Sawyer Merritt referred to Knight as Tesla’s “computer vision chief,” Musk

was determined to diminish the import of the move, posting that “Ethan is very

talented, but ‘vision chief’ would be overstating things.”77 Shortly after that

73
X.ai, https://x.ai/blog/grok-1.5.
74
X.ai, https://x.ai/blog/grok-1.5v.
75
Becky Peterson, Musk’s xAI is Poaching Engineers From Tesla, THE INFORMATION
(Apr. 3, 2024), https://www.theinformation.com/articles/musks-xai-is-poaching-
engineers-from-tesla.
76
Noor Al-Sibai, Elon Musk is Poaching Tesla Engineers for XAI. Wait, What?, FUTURISM
(Apr. 5, 2024), https://futurism.com/the-byte/elon-musk-poaching-tesla-xai.
77
Elon Musk (@elonmusk), X (Apr. 3, 2024 6:00pm), https://x.com/elonmusk/status/
1775644544853221599.

– 41 –
episode, in an apparent effort to obscure the extent to which Tesla AI employees

were being diverted to xAI, xAI dropped the section of its website listing its

technical employees.

79. On Tesla’s Q1 2024 earnings call, held April 23, 2024, Musk told

investors that Tesla planned to increase the number of active Nvidia H100S GPUs

from 35,000 to 85,000, and posted on X that Tesla would spend $10 billion through

2024 on “combined training and inference AI.”78 But an internal Nvidia email

observed that Musk’s earnings-call comment “conflicts with bookings,” and that his

X post “conflicts [with] bookings and FY 2025 forecasts.” 79

80. On May 18, 2024, Musk again threatened Tesla and its stockholders

by confirming that he would only build an AI and robotics business within Tesla if

Tesla gave him at least 25% voting power:

78
Tesla, Q1 2024 Earnings Call Transcript, https://www.fool.com/earnings/call-
transcripts/2024/04/23/tesla-tsla-q1-2024-earnings-call-transcript/.
79
Lora Kolodny, Elon Musk Ordered Nvidia to Ship Thousands of AI Chips Reserved for
Tesla to X and xAI, CNBC (June 4, 2024), https://www.cnbc.com/2024/06/04/elon-musk-
told-nvidia-to-ship-ai-chips-reserved-for-tesla-to-x-xai.html.

– 42 –
 81. This post also confirmed that Tesla has the capability to operate an AI

business, that AI and robotics ventures are within Tesla’s line of business, and that

Tesla has an interest and expectancy in the opportunity.

82. Nonetheless, in May 2024, xAI raised $6 billion in a Series B funding

round that valued xAI at $24 billion.80 Investors included, among others, Valor

80
Eric Revell, Elon Musk’s xAI Gets $6B in New Funding and Announces Valuation,
FOXBUSINESS (May 27, 2024), https://www.foxbusiness.com/technology/elon-musks-xai-
gets-6-billion-new-funding-announces-valuation.

– 43 –
Equity Partners, Vy Capital, Andreesen Horowitz, Sequoia Capital, Fidelity

Management & Research Company, Prince Alwaleed Bin Talal, and Kingdom

Holding.81 Musk himself personally invested $750 million and X invested $250

million in computing resources.82 Although xAI appears to have provided equity to

Musk-controlled X for its in-kind contributions, on information and belief, xAI has

not provided Tesla any equity for its own significant contributions to the company.

83. Reflecting the immense investment interest in both the AI industry and

in Musk himself, Musk and xAI originally aimed to raise only $3 billion in this

financing round at a targeted $18 billion valuation.83 But “strong demand” allowed

Musk to double his original goal at a 33% higher valuation.84

84. A pitch deck to potential investors in the Series B round stated that xAI

intended to harvest data from X and Tesla to help xAI catch up to AI companies

81
X.ai, https://x.ai/blog/series-b. Notably, many of these same investors—including Vy
Capital, Andreesen Horowitz, Sequoia Capital, Fidelity, and Prince Alwaleed Bin Talal—
were also investors in Musk’s ill-fated acquisition of Twitter in 2022. Offering them the
opportunity to invest in xAI helped make up for the losses from Twitter.
82
Berber Jin et al., Elon Musk’s xAI Valued at $24 Billion After Latest Fundraising Round,
WALL ST. J (May 27, 2024), https://www.wsj.com/tech/ai/elon-musks-xai-will-raise-6-
billion-in-latest-fundraising-round-fcdd722d?mod=article_inline.
83
Id.
84
Id.

– 44 –
OpenAI and Anthropic.85 X would provide data from social media users, and Tesla

would provide video data from its cars.86 As discussed herein, Musk has repeatedly

lauded the value of the base data set of information currently owned by Tesla for

AI products.

85. It is apparent that Musk has pitched prospective investors in xAI partly

by exploiting information owned by Tesla. On information and belief, Musk has

already or intends to have xAI harvest data from Tesla without appropriately

compensating Tesla even though X has already been provided xAI equity for its

data contributions. None of this would be necessary if Musk properly created xAI

as a subsidiary of Tesla.

86. In its announcement of the Series B funding, xAI made clear that it

intended to significantly grow its product offerings and work force:

xAI will continue on this steep trajectory of progress over the coming
months, with multiple exciting technology updates and products soon
to be announced. The funds from the round will be used to take xAI’s
first products to market, build advanced infrastructure, and accelerate
the research and development of future technologies.

xAI is primarily focused on the development of advanced AI systems

that are truthful, competent, and maximally beneficial for all of
humanity. The company’s mission is to understand the true nature of
the universe.

85
Kia Kokalitcheva, Elon’s AI Venture Being Sold as Part of a “Muskonomy,” AXIOS
(May 18, 2024), https://www.axios.com/2024/05/18/elon-musk-xai-fundraising.
86
Id.

– 45 –
 xAI is hiring for numerous roles and seeks talented individuals ready
to join a small team focused on making a meaningful impact on the
future of humanity. Those interested can apply today at x.ai/careers.87

87. Investors in the funding round were aware that xAI was currently

behind its rivals and would have to spend billions of dollars on chips and

infrastructure to catch up, further indicating that xAI will continue to raise money

and grow.88

88. xAI moved quickly to begin deploying its new capital. In June 2024,

Ted Townsend, the President of Memphis’s Chamber of Commerce, announced that

xAI will build a supercomputer in the city.89

F. The Board Permits Musk to Create and Grow xAI, Hindering Tesla’s
AI Development Efforts and Diverting Billions of Dollars in Value
from Tesla to xAI

89. The Tesla Board has done nothing as Musk has diverted value,

personnel, data, and resources from Tesla to xAI. The Board’s failure to act

87
X.ai, https://x.ai/blog/series-b.
88
George Hammond & Tabby Kinder, Elon Musk’s xAI Secures New Backing From
Andreesen, Lightspeed, Sequoia and Tribe, FIN. TIMES (May 23, 2024), https://www.ft
.com/content/0b6f634e-dbf0-4238-a319-1dc1bbc0b62e.
89
Meghan Bobrowsky & Berber Jin, Elon Musk’s xAI Plans to Build Supercomputer in
Memphis, WALL ST. J. (June 5, 2024), https://www.wsj.com/tech/ai/elon-musks-xai-plans-
to-build-supercomputer-in-memphis-ecee78fb.

– 46 –
constitutes an obvious breach of its members’ unyielding fiduciary duty to protect

the interests of Tesla and its stockholders.

90. Even without considering the financial harm caused by Musk’s

competing AI companies, Musk violated Tesla’s own Code of Business Ethics by

creating and leading xAI, and the Board has allowed Musk to continue to violate

this Code unimpeded. Musk’s actions with respect to xAI run afoul of multiple

examples of conflicts of interest that Tesla’s own Code of Business Ethics provides,

including “working for a competitor;” “looking for opportunities that should

otherwise go to Tesla first;” “developing or helping to develop outside inventions

that relate to existing or future Tesla products or your job at Tesla;” and “having a

substantial interest in a competitor or investing in another company if you can

influence Tesla’s relationship with that company.” 90 By founding and developing

xAI, Musk is actively engaged in each of these improper actions.

91. And by doing so, Musk is diverting enormous value away from Tesla.

At an implied $24 billion valuation, xAI is the second most valuable AI company,

behind only OpenAI, which arguably pioneered the industry with its now-famous

ChatGPT platform.

90
Tesla, Code of Business Ethics at 6 (available at https://digitalassets.tesla.com/tesla-
contents/image/upload/IR/business-code-of-ethics).

– 47 –
 92. Musk is creating enormous value at xAI—potentially worth hundreds

of billions of dollars in the near future—at Tesla’s expense. At this pace, xAI’s

value is poised to continue to increase rapidly—and if xAI is able to replicate

OpenAI’s early success, its value could be substantially higher still. OpenAI is now

valued at approximately $80 billion, despite the nascency of the company and the

AI industry as a whole. As acknowledged above, Musk himself has publicly stated

that he has “never seen anything grow faster than AI. Not even close.” 91

93. Musk himself publicly acknowledged that it would be appropriate for

xAI to exist within Tesla. Because Tesla is the “biggest AI project on earth” and

xAI is an eponymous AI company, these two Musk-controlled entities compete

directly for what can be viewed as the raw materials of AI development: GPUs and

human talent.

94. These basic AI resources are as vital as they are scarce, and the conflict

between Tesla and xAI in this regard is apparent. Tesla, for example, is building an

extension to its Texas factory that will house 50,000 Nvidia GPUs to develop

Tesla’s “full self-driving” software,”92 while xAI is building its own supercomputer

in Memphis, as described above. The fundamental and unavoidable approach to

91
Elon Musk (@elonmusk), X (Jan. 4, 2024 1:56pm), https://x.com/elonmusk/status/
1742983369296916762.
92
Elon Musk (@elonmusk), X (June 4, 2024 11:03am), https://x.com/elonmusk/status/
1798007748728365503.

– 48 –
developing AI models—building large computing centers using GPUs that can

process vast amounts of data—places Tesla and xAI in direct competition with one

another.

95. As described in Sections D–E, supra, Musk has already diverted

substantial resources and personnel from Tesla to xAI, in part because xAI is far

behind in the AI arms race. In the most blatant example of Musk shuffling resources

to Tesla’s detriment, Musk personally delayed a shipment of vital Nvidia GPUs

meant for Tesla, diverting them to xAI instead.

96. Thus, Musk abused his control over Tesla to jump his personally

favored AI company, xAI, ahead of Tesla in the ever-growing queue for skilled AI

engineers and Nvidia’s vital GPUs. Given the immense competitive pressure Tesla

currently faces and Musk’s own admissions that AI is critical to Tesla’s future,

Musk’s decision to put xAI ahead of Tesla’s AI efforts is simply inexcusable for

any fiduciary—let alone the fiduciary that controls Tesla. And this conduct reflects

equally poorly upon the rest of the Tesla Board, that has done nothing to manage

this conflict or to prevent Musk from unfairly favoring xAI’s interests over Tesla’s.

97. For his part, Musk has publicly admitted that he did indeed divert these

GPUs from Tesla. In a post on X on June 4, 2024, Musk explained his decision by

writing: “Tesla had no place to send the Nvidia chips to turn them on, so they would

– 49 –
have just sat in a warehouse.”93 Musk’s explanation makes little sense. As an initial

matter, this controversy could not have surfaced at a worse time for Musk, with

CNBC’s reporting becoming public only days before Tesla stockholders vote on

Musk’s $56 billion compensation package.

98. But beyond Musk’s obvious motive to downplay the significance of

his misconduct, Musk’s explanation makes little sense. Amidst great competitive

pressure and falling profits, why would Tesla order Nvidia’s expensive and highly

sought-after GPUs if it had no use for them? And more importantly, why was

Tesla—described by Musk himself as “an AI, robotics company”—unprepared to

make use of these GPUs, while X and xAI were ready to take delivery immediately?

Considering that Tesla has been developing autonomous technology for its cars for

years, while xAI was founded only months before Musk diverted GPUs from Tesla

to xAI, Musk’s explanation seems particularly dubious. Even if true, it would

appear to reflect a sudden and troubling shift in Musk-led AI development activities

from Tesla to X and xAI. Moreover, even if Tesla itself could not use the chips

immediately, it could have stored these valuable assets until it could use them.

93
Elon Musk (@elonmusk), X (June 4, 2024 11:03am), https://x.com/elonmusk/status/
1798007748728365503.

– 50 –
 99. Tesla’s Board members who have allowed this blatant conflict to fester

unsupervised for months have also sought to downplay the controversy. Even

though Musk publicly admitted that he diverted the GPU shipment from Tesla to

xAI, Denholm insisted that the claim was “just not true.” 94 Denholm stated that

Tesla is building a new data center that is due to come online in August 2024, and

that Tesla adjusted its purchase order with Nvidia to “line up with the data center

build.”95 But Denholm—who received “life-changing” compensation through her

tenure at Tesla96—said nothing about the Board supervising or approving this

decision. And most tellingly, when asked to provide a “good example of something

where Elon wanted to do something and you said no,” Denholm could not identify

a single specific example.97 Rather, Denholm simply replied that Musk and the

Board engage in “positive, constructive dialogue.”98 This reflects the reality at

Tesla: it is Musk’s company, and the Board is unwilling or unable to meaningfully

oversee him.

94
Form DEFA14A (June 6, 2024), https://www.sec.gov/Archives/edgar/data/1318605
/000110465924069150/tm2413800d21_defa14a.htm.
95
Id.
96
Tornetta, 310 A.3d at 509.
97
Form DEFA14A (June 6, 2024), https://www.sec.gov/Archives/edgar/data/1318605/
000110465924069150/tm2413800d21_defa14a.htm.
98
Id.

– 51 –
 100. The Board has freely allowed Musk—the CEO and largest stockholder

of Tesla, an AI company—to found and lead another AI company; to plunder

resources from Tesla and divert them to X and xAI; and to create billions in AI-

related value at a company other than Tesla. Worst of all, the Board has allowed

Musk to do this in the face of Musk’s overt threat to develop AI products outside

Tesla if he is not given a 25% stake in the Company. Musk has made abundantly

clear that he is willing to develop AI products outside Tesla, and is now making

good on that threat. The conflicted Board has failed in its fiduciary duty to prevent

Musk from doing so.

DERIVATIVE ALLEGATIONS

101. Plaintiffs bring this action derivatively on behalf of Tesla to redress

injuries suffered by the Company. Plaintiffs are currently beneficial owners of

Tesla common stock and have continuously owned Tesla common stock at all

relevant times.

102. Plaintiffs will adequately and fairly represent the interests of Tesla in

enforcing and prosecuting its rights and have retained counsel competent and

experienced in stockholder derivative litigation.

– 52 –
 DEMAND IS EXCUSED AS FUTILE

103. Plaintiffs did not make a demand on the Board to bring suit asserting

the claims set forth herein because pre-suit demand is excused as a matter of law.

Tesla’s board currently consists of eight directors: Defendants Musk, Denholm,

Kimbal, Ehrenpreis, Murdoch, Wilson-Thompson, Gebbia, and Straubel (the

“Demand Board”). A majority of the Demand Board is incapable of considering a

litigation demand impartially, as detailed below.

104. Demand is excused as futile with respect to a director who: (1) received

a material personal benefit from the alleged misconduct that is the subject of the

litigation demand (“Zuckerberg Prong 1”); (2) faces a substantial likelihood of

liability on any of the claims that would be the subject of the litigation demand

(“Zuckerberg Prong 2”); or (3) lacks independence from someone who received a

material personal benefit from the alleged misconduct that would be the subject of

the litigation demand or who would face a substantial likelihood of liability on any

of the claims that are the subject of the litigation demand (“Zuckerberg Prong 3”).99

Plaintiffs have adequately alleged that demand is futile here.

105. First, demand is excused as futile under Zuckerberg Prong 1 as to

Musk. As alleged herein, Musk inappropriately founded and personally invested at

99
United Food and Commercial Workers v. Zuckerberg, 262A.3d 1034, 1059 (Del. 2021).

– 53 –
least $750 million100 in a key Tesla AI competitor and has diverted and continues

to divert valuable talent and resources from Tesla to that competitor. Musk is xAI’s

founder and leader. Although the exact value and nature of Musk’s stake in xAI is

not publicly available, Musk certainly has voting and managerial control over xAI

and likely has a majority economic stake. Musk’s misconduct has enhanced and

will continue to enhance the value of his material personal stake in xAI.

106. For these reasons, demand is excused as futile as to Musk because he

received—and continues to receive—a material personal benefit from the alleged

misconduct.

107. Second, demand is excused as futile under Zuckerberg Prong 2 as to

Musk and each of the Director Defendants.

108. Musk faces a substantial likelihood of liability for breaching his

fiduciary duties as Tesla’s controlling stockholder and as a Tesla officer and director

by creating a startup that competes directly with Tesla and diverting billions of

dollars of value in the form of talent and resources from Tesla to that startup. In

Tornetta, the Court determined that, at Tesla, Musk “held some of the most

influential corporate positions (CEO, Chair, and founder), enjoyed thick ties with

100
Berber Jim, Meghan Bobrowsky, Kimberley Kao, Elon Musk’s xAI Valued at $24
Billion After Latest Fundraising Round, WALL ST. J. (May 27, 2024),
https://www.wsj.com/tech/ai/elon-musks-xai-will-raise-6-billion-in-latest-fundraising-
round-fcdd722d.

– 54 –
the directors tasked with negotiating on behalf of Tesla, . . . dominated the process

that led to board approval of his compensation plan[, and that a]t least as to [Musk’s

compensation plan], Musk controlled Tesla.”101 Every available indicator states

that Musk also controls Tesla both generally and with respect to the diversion of

Tesla’s value to xAI and X, as he alone has made decisions to redirect talent,

resources, and valuable GPUs to those competitors. Musk’s disloyal actions have

harmed and continue to harm Tesla and are a breach of the duties he owes as Tesla’s

controlling stockholder and as a Tesla officer and director.

109. Demand is, thus, excused as futile as to Musk because he faces a

substantial likelihood of liability for breaching his fiduciary duties as Tesla’s

controlling stockholder and as a Tesla officer and director.

110. Each of the Director Defendants (constituting the entirety of the

Demand Board excluding Musk) also faces a substantial likelihood of liability for

breaching their fiduciary duties by failing to act independently of Musk.

111. Musk is “the paradigmatic Superstar CEO[.]” 102 He co-founded Tesla,

is its largest stockholder, serves as its Technoking and CEO, and is a director on

Tesla’s Board. Throughout the entire period that Musk set up and favored xAI,

101
Tornetta, 310 A.3d at 446 (emphasis added).
102
Id.

– 55 –
Musk led Tesla’s management team. As discussed supra, Musk also founded xAI

and serves as its sole director and team leader.

112. Musk’s Superstar CEO status has created a “distortion field” that

interfered and continues to interfere with the Board’s oversight and imperiled and

continues to imperil the Board’s ability to act independent of Musk.103 As discussed

in Section F, supra, Musk’s fellow directors, in thrall to Musk’s “distortion field,”

have done nothing to respond to the existential threat xAI poses to Tesla, even as

Musk has diverted billions of dollars in value in the form of talent and resources

away from Tesla to his new competing artificial intelligence company.

113. In fact, Musk’s “distortion field” is so powerful that its impacts extend

beyond the financial and well into intimate aspects of Board members’ personal

lives. The “distortion field” permeates the Board so thoroughly that its members

feel pressured to take drugs with Musk. The Wall Street Journal reports that:

In the culture Musk has created around him, some friends, including
directors, feel there is an expectation to consume drugs with him
because they think refraining could upset the billionaire, who has made
them a lot of money, some of the people said. More so, they don’t
want to risk losing the social capital that comes from being close to
Musk, which for some feels akin to having proximity to a king. 104

103
Id. at 507.
104
Kirsten Grind, Emily Glazer, Rebecca Elliott, Coulter Jones, The Money and Drugs
That Tie Elon Musk to Some Tesla Directors, WALL ST. J. (Feb. 3, 2024),
https://www.wsj.com/tech/elon-musk-tesla-money-drugs-board-61af9ac4 (emphasis
added).

– 56 –
 114. A board that feels peer pressure to take drugs with a controller cannot

be reasonably expected to act independently of that controller.

115. For these reasons, demand is excused as futile as to each of the Director

Defendants under Zuckerberg Prong 2 because they face a substantial likelihood of

liability for breaching their fiduciary duty of loyalty by allowing Musk to divert

value from Tesla to xAI and X without doing anything about it.

116. Third, demand is excused as futile under Zuckerberg Prong 3 because

each of the Director Defendants (constituting the entirety of the Demand Board

excluding Musk) lacks independence from Musk, who received a material personal

benefit from the alleged misconduct that would be the subject of the litigation

demand and who faces a substantial likelihood of liability on the claims that would

be the subject of the litigation demand.

117. Kimbal is incapable of considering a demand against Musk. The

Court has already concluded in Tornetta that Kimbal “lacked independence from

Musk.”105 Kimbal is Musk’s brother, and, in a concession to his lack of

independence from Musk, recused himself from discussion of or voting on the stock

grant at issue in Tornetta.106 What’s more, the Wall Street Journal has reported that

105
Tornetta, 310 A.3d at 510.
106
Id. at 508 n.636.

– 57 –
Kimbal has “consumed drugs with [Musk], according to people who have witnessed

the drug use and others with knowledge of it.” 107 On information and belief, Kimbal

has done nothing to address Musk’s recreational use of illicit substances.

118. The Court’s prior conclusion, the familial relationship between Kimbal

and Musk, Kimbal’s prior recusal, and Kimbal’s consumption of drugs with Musk

support the conclusion that Kimbal has a deep relationship with his brother, is

beholden to him, and is incapable of considering a demand against him.

119. Murdoch is incapable of considering a demand against Musk. The

Court has already concluded in Tornetta that “Murdoch lacked independence due

to [his] personal connection with Musk. He was a long-time friend of Musk before

he joined the Board and they repeatedly vacationed together with their respective

families. It was during one such trip that Musk, Kimbal, and [former Board member

Antonio Gracias] recruited Murdoch to the Board.” 108 The nature and depth of

Murdoch’s social relationship with Musk suggests that Murdoch feels pressure to

take drugs with Musk. On information and belief, Murdoch has done nothing to

address Musk’s recreational use of illicit substances.

107
Kirsten Grind, Emily Glazer, Rebecca Elliott, Coulter Jones, The Money and Drugs
That Tie Elon Musk to Some Tesla Directors, WALL ST. J. (Feb. 3, 2024),
https://www.wsj.com/tech/elon-musk-tesla-money-drugs-board-61af9ac4.
108
Tornetta, 310 A.3d at 510.

– 58 –
 120. What’s more, Murdoch has received millions of dollars in

compensation for his service on the Board. He received over $1.9 million for his

2017 service109 and over $9 million for his 2018 service.110 Outsized director

compensation can compromise a director’s independence.111 Tesla “pays its

directors . . . far more than the average compensation for boards at most U.S.

companies.”112 Murdoch’s compensation as a Tesla director vastly outstrips the

average total compensation for board members in the largest 200 U.S. companies,

which, in 2023, was $329,352[.]” 113

121. The Court’s prior conclusion, Murdoch’s long-time friendship with

Musk prior to Murdoch’s appointment to the Board, and the repeated family

vacations support the conclusion that Murdoch has a deep relationship with Musk,

is beholden to him, and is incapable of considering a demand against him.

109
Form DEF 14A at 43, (April 26, 2018), https://www.sec.gov/Archives/edgar/data/131
8605/000156459018009339/tsla-def14a_20180606.htm.
110
Form DEF 14A at 66, (April 30, 2019), https://www.sec.gov/Archives/edgar/data/131
8605/000156459019014268/tsla-def14a_20190611.htm.
111
Tornetta, 310 A.3d at 509-10.
112
Kirsten Grind, Emily Glazer, Rebecca Elliott, Coulter Jones, The Money and Drugs
That Tie Elon Musk to Some Tesla Directors, WALL ST. J. (Feb. 3, 2024),
https://www.wsj.com/tech/elon-musk-tesla-money-drugs-board-61af9ac4.
113
Id.

– 59 –
 122. Ehrenpreis is incapable of considering a demand against Musk.

Ehrenpreis’s financial life is intertwined with Musk’s. Ehrenpreis and the venture-

capital firm he founded and of which he is managing partner have invested tens of

millions of dollars in Musk-controlled companies.114 He has acknowledged that his

role as a Tesla director was “a real benefit in fundraising” for his funds. 115

123. Outsized director compensation can compromise a director’s

independence.116 Tesla “pays its directors . . . far more than the average

compensation for boards at most U.S. companies.” 117 Ehrenpreis was granted

865,790 Tesla options during part of his tenure on the Board and, in 2021, netted

over $200 million by exercising less than a quarter of those options.118 This

114
Tornetta, 310 A.3d at 455; Kirsten Grind, Emily Glazer, Rebecca Elliott, Coulter Jones,
The Money and Drugs That Tie Elon Musk to Some Tesla Directors, WALL ST. J. (Feb. 3,
2024), https://www.wsj.com/tech/elon-musk-tesla-money-drugs-board-61af9ac4.
115
Tornetta, 310 A.3d at 455.
116
Id. at 509–10.
117
Kirsten Grind, Emily Glazer, Rebecca Elliott, Coulter Jones, The Money and Drugs
That Tie Elon Musk to Some Tesla Directors, WALL ST. J. (Feb. 3, 2024),
https://www.wsj.com/tech/elon-musk-tesla-money-drugs-board-61af9ac4.
118
Tornetta, 310 A.3d at 455.

– 60 –
compensation vastly outstrips the average total compensation for board members in

the largest 200 U.S. companies, which, in 2023, was $329,352[.]” 119

124. Ehrenpreis further has a significant social relationship with Musk. He,

Musk, and Kimbal have known each other for over fifteen years, and, as Ehrenpreis

has acknowledged, “his personal and professional relationship with the Musk

brothers has had a ‘significant influence on his professional career[.]’” 120

Ehrenpreis and Musk’s brother Kimbal have known each other since at least

1999.121 Ehrenpreis attended Kimbal’s destination wedding in Spain and invested

in Kimbal’s restaurant company The Kitchen Group.122 On information and belief,

Ehrenpreis has done nothing to address Musk’s recreational use of illicit substances.

125. The Court has already concluded that Ehrenpreis’ relationship with

Musk was “weighty,” and, in the context of Ehrenpreis’ role as Chair of the

Compensation Committee with respect to the stock grant at issue in Tornetta, that

it was “too weighty.”123 Ehrenpreis’ relationship with Musk is, with respect to the

119
Kirsten Grind, Emily Glazer, Rebecca Elliott, Coulter Jones, The Money and Drugs
That Tie Elon Musk to Some Tesla Directors, WALL ST. J. (Feb. 3, 2024),
https://www.wsj.com/tech/elon-musk-tesla-money-drugs-board-61af9ac4.
120
Tornetta, 310 A.3d at 455.
121
Id.
122
Id.
123
Id. at 509.

– 61 –
wholesale diversion of billions of dollars of value from Tesla to xAI, again, “too

weighty.” Ehrenpreis’ web of social and financial connections with Musk,

including Ehrenpreis’ outsized Tesla compensation, supports the conclusion that

Ehrenpreis has a deep relationship with Musk, is beholden to him, and is incapable

of considering a demand against him.

126. Denholm is incapable of considering a demand against Musk

because she has received hundreds of millions of dollars in compensation through

her work at Tesla and is beholden to Musk, as Tesla’s controller, for this “life-

changing” amount of wealth.124 On information and belief, Denholm has also done

nothing to address Musk’s recreational use of illicit substances.

127. Denholm “runs Tesla board meetings as informal, family-style

occasions [at which d]irectors sometimes ask softball questions of Musk, such as

future Tesla product colors.”125 Denholm’s soft touch is unsurprising; Musk has

said that he “handpicked” her and that the idea that “Denholm would watch over

him was ‘not realistic[.]’”126

124
Id.
125
Kirsten Grind, Emily Glazer, Rebecca Elliott, Coulter Jones, The Money and Drugs
That Tie Elon Musk to Some Tesla Directors, WALL ST. J. (Feb. 3, 2024),
https://www.wsj.com/tech/elon-musk-tesla-money-drugs-board-61af9ac4.
126
Id.

– 62 –
 128. Since Musk anointed her to the Tesla Board in 2018, Denholm has

earned hundreds of millions of dollars in compensation, primarily through the award

and exercise of Tesla stock options. In 2021 and 2022 alone, for example, Denholm

realized some $280 million by exercising just a fraction of the Tesla options she had

received as compensation.127 This year, she already has received more than $50

million by selling stock she was granted as a Tesla director. 128 Denholm’s Tesla

compensation far exceeded the compensation she received from other sources. 129 It

is therefore no surprise that Denholm herself described the compensation she has

received through Tesla as “life-changing.”130 Outsized director compensation can

compromise a director’s independence.131

129. Denholm’s lack of independence from Musk is made all the more

apparent by her conduct following the Court’s decision in Tornetta. Since Tornetta

was decided, Denholm has spearheaded Tesla’s—in reality, Musk’s—efforts to

reanimate the compensation plan that the Board originally awarded Musk in 2018.

127
Tornetta, 309 A.3d at 457.
128
Lora Kolodny, Tesla Chairwoman Robyn Denholm has sold over $50 million worth of
stock in 2024, CNBC (May 7, 2024), https://www.cnbc.com/2024/05/07/tesla-chair-robyn-
denholm-sold-over-50-million-in-stock-this-year.html.
129
Tornetta, 309 A.3d at 457.
130
Id. at 509.
131
Id. at 509–10.

– 63 –
Immediately after Tornetta was issued, Musk tweeted: “Never incorporate your

company in the state of Delaware.”132 Musk’s rationale was plain: he was infuriated

by the Court’s decision and the loss of his $56 billion pay package, and wished that

Tesla was incorporated in a state that takes a much more lax approach to fiduciary

conduct than Delaware does.

130. Soon after Musk’s tweet, Tesla announced that it would hold a

stockholder vote to “ratify” Musk’s compensation plan, and to approve

redomesticating Tesla in Texas. Tesla’s redomestication proposal is clearly Musk’s

redomestication proposal, and it is Musk—as Tesla’s largest and controlling

stockholder—who stands to benefit the most from Tesla operating free of

Delaware’s governance norms. Denholm has led the public relations campaign to

make Musk’s dream a reality and to reinstate his $56 billion in compensation. In a

letter to stockholders issued with Tesla’s April 13, 2024 Proxy statement, Denholm

declared that the Court “struck down one of your votes and rescinded the pay

package that an overwhelming majority of you voted to grant to our CEO, Elon

Musk, in 2018.”133 This was misleading at best, as only a majority of the

disinterested shares that were actually voted at the 2018 meeting were voted in favor

132
Elon Musk (@elonmusk), X (Jan. 30, 2024 5:14pm), https://x.com/elonmusk/status/
1752455348106166598.
133
Form DEF 14A at 14 (April 29, 2024), https://www.sec.gov/ix?doc=/Archives/edgar/d
ata/1318605/000110465924053333/tm2326076d15_def14a.htm.

– 64 –
of the compensation package. The 2018 compensation package failed to receive

the support of a majority of Tesla’s outstanding disinterested shares.

131. Nonetheless, Denholm further decried that “Elon has not been paid for

any of his work for Tesla for the past six years,” and that this struck her and the

Board as “fundamentally unfair.”134 Ultimately, Denholm pitched the vote on the

redomestication proposal as “a matter of fundamental fairness and respect to our

CEO.”135

132. Denholm’s decision to serve as the spokeswoman for Musk’s multi-

billion-dollar payday—entirely unfazed by the Court’s criticism of her conduct in

Tornetta—demonstrates that her allegiance lies with Musk before it does with

Tesla. Given the “life-changing,” outsized compensation she has received through

Musk-controlled Tesla, her conduct as a Tesla director, and her spearheading of

Musk’s compensation and redomestication campaigns, Denholm is incapable of

considering a demand against Musk.

133. Gebbia is incapable of considering a demand against Musk.

Gebbia has reportedly attended social gatherings with Musk where “Musk took

134
Id.
135
Id.

– 65 –
ketamine recreationally through a nasal spray bottle multiple times.” 136 Gebbia has,

on information and belief, done nothing to address Musk’s recreational use of illicit

substances and inferably feels pressure to take drugs with Musk. Further, Gebbia

was initially a member of the purportedly independent special committee formed

after Tornetta was issued that was charged with evaluating redomestication and

Musk’s pay package. Gebbia stepped down from that committee because “Musk

had discussed purchasing a house from [Gebbia’s] start-up” and Gebbia was

“concerned their friendship could be seized on to attack the committee’s

independence.”137 Gebbia’s concerns are well-founded. Discussions of a deal

between Gebbia’s start-up and Musk, considered alongside Gebbia’s reportedly

drug-fueled friendship with Musk, support the conclusion that Gebbia has a deep

relationship with Musk, is beholden to him, and is incapable of considering a

demand against him.

136
Kirsten Grind, Emily Glazer, Rebecca Elliott, Coulter Jones, The Money and Drugs
That Tie Elon Musk to Some Tesla Directors, WALL ST. J. (Feb. 3, 2024),
https://www.wsj.com/tech/elon-musk-tesla-money-drugs-board-61af9ac4.
137
Rachael Levy, Exclusive: Tesla director Gebbia says he discussed selling house to
Musk, REUTERS, (June 3, 2024), https://www.reuters.com/business/tesla-director-gebbia-
says-he-discussed-selling-house-musk-2024-06-03/; see also Form DEF 14A at 19, (April
29, 2024),
https://www.sec.gov/ix?doc=/Archives/edgar/data/1318605/000110465924053333/tm232
6076d15_def14a.htm.

– 66 –
 134. Straubel is incapable of considering a demand against Musk.

Straubel co-founded Tesla alongside Musk and served as Tesla’s Chief Technology

Officer for over fourteen years. In addition to his service on the Board, Straubel is

the Founder and Chief Executive Officer of Redwood Materials Inc. (“Redwood”).

Redwood “offer[s] large-scale sources of” important materials “from recycled

batteries.”138 Tesla and Redwood are parties to an agreement with respect to the

supply of “certain scrap materials” under which “Redwood incurred expenses of

approximately $11.5 million in 2023 and approximately $6 million through

February 2024.”139 It is reasonable to assume that this agreement is material to

Redwood, and, therefore, to Straubel. Further, as discussed supra, Straubel served

on the board of SolarCity Corporation, which Musk founded with his cousins and

that Musk caused Tesla to acquire in 2016.140 On information and belief, Straubel

has also done nothing to address Musk’s recreational use of illicit substances.

135. Straubel’s material business relationship and role as a SolarCity

Corporation director, his long history as a key member of Tesla’s management

team, and his status as a Tesla co-founder, support the conclusion that Straubel has

138
Form DEF 14A at 14 (April 29, 2024), https://www.sec.gov/ix?doc=/Archives/edgar/d
ata/1318605/000110465924053333/tm2326076d15_def14a.htm.
139
Id.
140
Id.

– 67 –
a deep relationship with Musk, is beholden to him, and is incapable of considering

a demand against him.

136. Wilson-Thompson is incapable of considering a demand against

Musk. As noted, outsized director compensation can compromise a director’s

independence.141 Wilson-Thompson “has realized a pre-tax total of approximately

$62 million from the exercise of equity awards received for her service on the

Board” and currently owns 771,255 shares worth well over $100 million.142 Tesla

admits that this constitutes “a meaningful portion of [Wilson-Thompson’s] net

worth.”143 This compensation vastly outstrips the average total compensation for

board members in the largest 200 U.S. companies, which, in 2023, was

$329,352[.]”144 Further, on information and belief, Wilson-Thompson has done

nothing to address Musk’s recreational use of illicit substances. Wilson-

Thompson’s outsized Tesla compensation supports the conclusion that Wilson-

141
Tornetta, 310 A.3d at 509-10.
142
Form DEF 14A at E-28 (April 29, 2024), https://www.sec.gov/ix?doc=/Archives/edga
r/data/1318605/000110465924053333/tm2326076d15_def14a.htm.
143
Id.
144
Kirsten Grind, Emily Glazer, Rebecca Elliott, Coulter Jones, The Money and Drugs
That Tie Elon Musk to Some Tesla Directors, WALL ST. J. (Feb. 3, 2024),
https://www.wsj.com/tech/elon-musk-tesla-money-drugs-board-61af9ac4.

– 68 –
Thompson is beholden to Musk and is incapable of considering a demand against

him.

137. Under these circumstances, the Board cannot be expected to bring the

claims asserted herein, and the actions of the Board challenged herein cannot enjoy

protection from judicial scrutiny. Demand is therefore excused.

COUNTS

COUNT I:
DERIVATIVE CLAIM FOR BREACH OF FIDUCIARY DUTY AGAINST
MUSK AS A DIRECTOR, OFFICER, AND CONTROLLER

138. Plaintiffs incorporate by reference and reallege each and every

allegation above, as though fully set forth herein.

139. Musk, as a director, Chief Executive Officer, and controlling

stockholder of Tesla, has been a fiduciary of the Company at all relevant times. As

such, he owed the Company the highest duties of loyalty and care.

140. Musk breached these duties by founding and operating rival AI

company xAI and, inter alia: (i) hiring AI employees away from Tesla, (ii) diverting

microchips from Tesla to X and xAI, and (iii) using Tesla’s data to develop xAI’s

own software/hardware, all without compensation to Tesla.

141. xAI operates in the same line of business as Tesla. Tesla has the

financial capability to operate xAI. Tesla has an interest and expectancy in the

– 69 –
opportunity to operate an AI business. Musk created a conflict of interest by

founding and operating xAI separately from Tesla.

142. Tesla’s Amended and Restated Certificate of Incorporation contains no

reference to any waiver of any corporate opportunities

143. As a result of Musk’s actions, which took valuable AI opportunities

from Tesla, Musk—through xAI—usurped corporate opportunities from Tesla.

Accordingly, Musk’s disloyal actions have caused significant harm to Tesla.

144. Plaintiffs and the Company have no adequate remedy at law.

Accordingly, this Court has subject matter jurisdiction.

COUNT II:
DERIVATIVE CLAIM FOR BREACH OF FIDUCIARY DUTY
AGAINST THE DIRECTOR DEFENDANTS

145. Plaintiffs repeat and reallege each and every allegation above as if set

forth in full herein.

146. The Director Defendants, as Tesla directors, are fiduciaries of the

Company. As such, they owe the Company the highest duties of loyalty and care.

147. The Director Defendants breached their duty of loyalty by consciously

disregarding their duties to Tesla and its public common stockholders in connection

with Musk’s founding and operating rival AI company xAI.

148. The Director Defendants’ failure to exercise appropriate oversight of

Musk, and other breaches of fiduciary duty, has resulted in, inter alia: (i) Musk

– 70 –
founding and operating xAI independently of Tesla; (ii) xAI hiring AI employees

away from Tesla, (iii) the diversion of microchips from Tesla to X and xAI, and (iv)

xAI’s use of Tesla’s data to develop xAI’s own software/hardware, all without

compensation to Tesla. Accordingly, the Company has been harmed by the Director

Defendants’ breaches of fiduciary duty.

149. Plaintiffs and the Company have no adequate remedy at law.

Accordingly, this Court has subject matter jurisdiction.

COUNT III:
DERIVATIVE CLAIM FOR UNJUST ENRICHMENT AGAINST MUSK

150. Plaintiffs repeat and reallege each and every allegation above as if set

forth in full herein.

151. As detailed herein, Musk’s founding and operation of rival AI

company xAI is unfair to Tesla, is the product of breaches of fiduciary duty by the

Individual Defendants, and has resulted in inter alia: (i) xAI hiring AI employees

away from Tesla, (ii) the diversion of microchips from Tesla to X and xAI, and (iii)

xAI’s use of Tesla’s data to develop xAI’s own software/hardware, all without

compensation to Tesla.

152. Musk was—and continues to be—the direct recipient of the improper

and valuable benefits flowing from the usurpation of corporate opportunities

described herein. Those benefits were derived by unlawful means.

– 71 –
 153. Under these circumstances, it would be unconscionable to permit Musk

to retain the improper benefits received pursuant to these breaches of fiduciary duty.

154. Plaintiffs and the Company have no adequate remedy at law.

Accordingly, this Court has subject matter jurisdiction.

PRAYER FOR RELIEF

WHEREFORE, Plaintiffs, on behalf of Tesla, request judgment as follows:

A. Finding the Individual Defendants liable for breaching their fiduciary

duties owed to the Company as directors—and, in Musk’s case, an officer
and controller—of the Company;

B. Finding that demand on the Tesla Board is excused as futile;

C. Awarding Tesla the amount of damages Tesla sustained as a result of the

Defendants’ breaches of fiduciary duties, including rescissory damages;

D. Awarding Tesla the amount of damages Tesla sustained as a result of

Musk’s unjust enrichment;

E. Disgorging Musk’s equity stake in xAI to Tesla;

F. Imposing a constructive trust over Musk’s interest in xAI; and

G. Awarding such other and further relief as this Court may deem just and
proper.

– 72 –
 /s/ Christine M. Mackintosh
Christine M. Mackintosh (#5085)
Of Counsel: Vivek Upadhya (#6241)
William G. Passannante II (#7093)
David J. Schwartz GRANT & EISENHOFER P.A.
David L. Wales 123 Justison St., 7th Fl.
SAXENA WHITE P.A. Wilmington, DE 19801
10 Bank Street, 8th Floor (302) 622-7000
White Plains, New York 10606 cmackintosh@gelaw.com
(914) 437-8551 vupadhya@gelaw.com
wpassannante@gelaw.com
Adam D. Warden
SAXENA WHITE P.A. Thomas Curry (#5877)
7777 Glades Road, Suite 300 SAXENA WHITE P.A.
Boca Raton, Florida 3343 824 N. Market Street, Suite 1003
(561) 394-3399 Wilmington, Delaware 19801
(302) 485-0483
Brian Schall tcurry@saxenawhite.com
THE SCHALL LAW FIRM
2049 Century Park East, Suite 2460
Los Angeles, CA 90067 Counsel for Plaintiffs
(424) 303-1964

(pro hac vice motions forthcoming)

Dated: June 13, 2024

– 73 –