Musk Opposes xAI-Tesla Merger Amid Financial Challenges

Elon Musk has explicitly stated his opposition to a potential merger between xAI and Tesla, despite previously exploring a $50 billion investment in xAI. This stance comes after Musk sought input from Tesla shareholders regarding the investment in xAI. Last year, Musk publicly discussed the possibility of Tesla investing $50 billion in xAI, emphasizing that this proposal was merely a market test and that any substantial investment would require formal approval from Tesla's board of directors and major shareholders.

Musk's recent opposition to the merger follows his announcement of a strategic merger between xAI and X, the former Twitter platform. This merger has resulted in an entity valued at $113 billion, significantly increasing its attractiveness to potential investors. The merger has expanded the application scenarios and user coverage of xAI's Grok chatbot, which has made notable technological advancements. However, the commercialization process of Grok remains challenging, with its 2025 annualized subscription revenue at $16.98 million and 26.64 million users in April, compared to ChatGPT's $1 billion and 546 million users during the same period.

Despite the technological progress, xAI faces significant financial challenges. The development of advanced AI models like Grok has led to substantial investments in server clusters and specialized chips, resulting in a monthly expenditure of $1 billion and an annual burn rate estimated at $130 billion. In contrast, xAI's projected revenue for this year is only $5 billion, with an estimated increase to $20 billion by 2026, still far below the expenditure growth rate.

To address these financial challenges, xAI is reportedly preparing to raise additional funds through a transaction that could value the company between $180 billion and $200 billion, a tenfold increase from its valuation at the start of last year. This funding round, which is currently under discussion, could commence as early as next month. This would be the third significant equity sale for the company in less than two months, following a $100 billion raise through loans and cash investments in July and a $3 billion stock sale in June. Additionally, SpaceX, another company under Musk's umbrella, has committed to investing $20 billion in xAI, part of the original $50 billion equity financing plan.

Musk's rapid expansion in the AI sector is accompanied by substantial financial pressures and commercialization challenges. He must balance xAI's development with Tesla's core business through capital operations and technological innovations to ensure the continued growth of his tech empire. The $50 billion investment plan, which requires shareholder approval, underscores the importance of stakeholder input in shaping the company's strategic direction. The merger between xAI and X has created a highly valued entity, which could influence Tesla's future investment decisions and partnerships.