Tesla discloses $2 billion investment in Elon Musk’s xAI amid probes

Tesla disclosed in its fourth-quarter 2025 earnings filing and a shareholder letter that it has entered an agreement to purchase roughly $2 billion of Series E preferred shares in xAI, the artificial intelligence company founded by Elon Musk. The transaction, the company said, was made on market terms consistent with other investors and is expected to close in the first quarter of 2026 subject to customary regulatory approvals.

The share purchase is part of a Series E financing round that raised roughly $20 billion and that has been widely reported to value xAI at about $230 billion. Reported participants in the round include Valor Equity Partners, Fidelity, the Qatar Investment Authority and strategic investors Nvidia and Cisco. By those figures, Tesla’s $2 billion equals about 10 percent of the Series E raise but would represent under 1 percent of xAI on a company-wide basis.

Tesla said it also signed a framework agreement with xAI intended to build on an existing relationship and provide a structure for evaluating potential collaborations. Company materials linked the deal directly to Tesla’s broader strategy of embedding advanced AI into physical products at scale, part of an initiative executives have described as Master Plan Part IV. That strategy includes retooling factory capacity and advancing work on the Optimus humanoid robot, changes Tesla has reported alongside its earnings materials.

The announcement has reignited a governance fight that has shadowed the companies since Musk founded xAI in 2023. In November 2025 Tesla held a nonbinding shareholder vote to authorize the board to pursue an investment in xAI. Roughly 1.06 billion votes were cast in favor and 916.3 million opposed, but under Tesla’s bylaws a large number of abstentions counted as votes against and the measure failed. Despite the outcome, Tesla moved forward with the deal. Several shareholders have filed lawsuits alleging breach of fiduciary duty over Musk’s role in creating xAI; those cases remain unresolved.

The investment comes as xAI faces regulatory scrutiny over Grok, its chatbot and image-generation system that has been integrated into Musk’s social platform X. Regulators in multiple jurisdictions have opened probes after versions of Grok were used to create explicit deepfake images of real people without their consent, raising privacy and safety concerns. Tesla’s shareholder materials said Grok is already in use within some Tesla vehicles, a point underscored by Tesla CFO Vaibhav Taneja who said, "Today, if you look at Tesla vehicles, we are using Grok in there."

The combination of a large capital infusion and active regulatory inquiries places both companies at a crossroads. For Tesla, the investment offers access to xAI’s models and talent as it advances autonomous driving and robotics, but it also exposes the automaker to reputational and legal risks tied to deepfake misuse and regulatory enforcement. For xAI, the backing of an industrial partner such as Tesla could accelerate deployments of AI into the physical world even as governments weigh potential restrictions and safeguards.

What remains uncertain is the ultimate legal outcome of shareholder suits and the scope and timing of any regulatory action against Grok. The transaction’s closing will depend on approvals now pending, and both companies face the task of reconciling aggressive AI deployment plans with emerging privacy, safety and governance demands. A Feb. 18, 2025 photo by Vincent Feuray/Hans Lucas/AFP via Getty Images captured Musk with a phone displaying the Grok logo, a visual reminder of how closely the technologies and personalities are now intertwined.