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

This investment represents a circular arrangement that Tesla shareholders had actually voted down last year. In November, a nonbinding proposal asked shareholders to permit the Tesla board to authorize an investment in xAI. While approximately 1.06 billion votes were cast in favor and 916.3 million opposed, a significant number of abstentions—which count as votes against under Tesla's bylaws—resulted in the measure being rejected. Tesla moved forward regardless, presenting its case for the investment both in the shareholder letter and during its earnings call.

Tesla's rationale appears closely linked to xAI's alignment with the company's latest strategic blueprint, Master Plan Part IV, and the deepening ties between the two firms. "As outlined in Master Plan Part IV, Tesla is creating products and services that integrate AI into the physical world. Meanwhile, xAI is advancing cutting-edge digital AI offerings, such as its large language model, Grok," the shareholder letter states. "Within that context, and as a component of Tesla's broader strategy under Master Plan Part IV, Tesla and xAI have also entered into a framework agreement alongside this investment."

According to Tesla, this agreement builds on an existing partnership by "establishing a structure for assessing potential AI collaborations between the companies." Elon Musk confirmed last year that Tesla already provides its Megapack batteries to power xAI data centers, and the xAI chatbot Grok has been integrated into some Tesla vehicles. Reports also indicate that xAI informed investors of its intention to develop AI for humanoid robots, such as Tesla's Optimus. Musk emphasized that while Tesla handles many tasks internally, "if xAI can help accelerate our progress, then why should we not do that? That is precisely why we've proceeded with this investment—it's a strategic initiative."

In its shareholder communication, Tesla highlighted these and other advancements in physical AI and robotics, including development plans for the Optimus robot, semi-trucks, and additional autonomous capabilities. The company surpassed Wall Street expectations for earnings and revenue, though its annual profit declined by 46%. "Together, the investment and the associated framework agreement are designed to strengthen Tesla's capacity to develop and deploy AI products and services at scale within the physical world," Tesla explained. The investment is anticipated to finalize in the first quarter.

During the earnings call, Musk and Tesla CFO Vaibhav Taneja indicated that further capital expenditures supporting the company's mission are expected. "This year marks Tesla's first major strides as we enhance vehicle autonomy and initiate large-scale production of Optimus robots—we are committing to very substantial investments," Musk stated. "Consequently, capital expenditures will be significant; this is intentional, as we are investing heavily toward an epic future."