Tesla has recently made a significant move by investing approximately $2 billion in xAI, the artificial intelligence startup founded by Elon Musk. This decision was unveiled during Tesla’s Q4 2025 earnings report, where the company announced its participation in xAI’s Series E funding round, valuing the AI firm at an impressive $230 billion.
This investment comes after deliberation and a previously rejected proposal for a larger stake of $5 billion. Tesla proceeded with acquiring preferred stock on similar terms as other major investors, such as SpaceX, which also contributed $2 billion to the funding round.
Enhancing Collaboration through a Formal Agreement
Aside from the financial investment, Tesla and xAI have inked a formal framework agreement to explore potential AI collaborations in the future. This strategic move aligns with Tesla’s Master Plan Part IV, which aims to merge digital intelligence with the physical realm.
While xAI specializes in digital products like its Grok large language model, Tesla intends to leverage this expertise to expedite its own physical AI initiatives. This includes advancing unsupervised self-driving technology and the development of the Optimus humanoid robot, projects that Musk believes will shape the future of the company.
Navigating Legal and Strategic Challenges
The $2 billion deal transpires amidst complex circumstances, as Tesla is currently entangled in a lawsuit from shareholders who assert that Musk violated his fiduciary duties by establishing xAI, alleging that he redirected resources and talent away from Tesla for personal gain.
Despite these legal hurdles, Musk remains optimistic about the potential synergies between his ventures. “The investment and related framework agreement are aimed at empowering Tesla to create and deploy AI products and services in the physical world on a large scale,” as stated in the company’s shareholder presentation.
The completion of the transaction is contingent on standard regulatory approvals and is anticipated to finalize within the first quarter of 2026.