Three weeks after Elon Musk's AI venture, xAI, announced a $20 billion Series E funding round, it has now been confirmed that Tesla is among the backers. In a shareholder letter released on Wednesday, Tesla disclosed a $2 billion investment in xAI, the startup responsible for the Grok chatbot and owner of Musk's social media platform X. Other investors previously named include Valor Equity Partners, Fidelity, Qatar Investment Authority, along with Nvidia and Cisco as strategic partners.

This move represents a notably circular transaction, one that Tesla shareholders had actually voted down last year. In November, a nonbinding proposal asked shareholders to permit the Tesla board to invest in xAI. At the time, Bloomberg reported approximately 1.06 billion votes in favor and 916.3 million against. While that might appear to be an approval, a significant number of abstentions—which count as opposing votes under Tesla’s bylaws—resulted in the measure being rejected. Tesla moved forward regardless, offering a rationale for the investment.

Tesla’s justification seems closely linked to xAI’s alignment with the company’s latest master plan and the anticipated deepening of ties between the two firms. The shareholder letter states, “As set forth in Master Plan Part IV, Tesla is building products and services that bring AI into the physical world. Meanwhile, xAI is developing leading digital AI products and services, such as its large language model (Grok). In that context, and as part of Tesla’s broader strategy under Master Plan Part IV, Tesla and xAI also entered into a framework agreement in connection with the investment.”

According to Tesla, this agreement builds on an existing relationship by establishing a structure to assess potential AI collaborations. Last year, Musk confirmed that Tesla already supplies its Megapack batteries to power xAI data centers, and the company has integrated the Grok chatbot into certain vehicles. Bloomberg also noted that xAI informed investors of plans to develop AI for humanoid robots, such as Tesla’s Optimus.

In its letter, Tesla highlighted advancements in physical AI and robotics, including development plans for the Optimus robot, semitrucks, and other autonomous capabilities. While the company broadly exceeded Wall Street estimates for earnings and revenue, its profit declined by 46% last year.

Tesla summarized the intent behind the move, stating, “Together, the investment and the related framework agreement are intended to enhance Tesla’s ability to develop and deploy AI products and services into the physical world at scale.” The investment is anticipated to finalize in the first quarter.