Tesla and xAI Ties Raise Questions About 'Muskonomy'

Elon Musk’s companies are increasingly intertwined, with xAI playing a central role in his broader business strategy. xAI’s recent integration into X and its deployment into Tesla vehicles highlights the growing synergy between Musk’s ventures. Analysts and investors are now watching how these cross-company ties might affect both xAI and Tesla’s long-term value.

xAI reported a net loss of $1.46 billion for the third quarter of 2025, with losses mounting as the company invests in AI development and data centers. The startup has spent $7.8 billion in cash in the first nine months of the year, raising concerns about its sustainability. Despite the cash burn, xAI has attracted major investors, including Nvidia and the Qatar Investment Authority according to financial reports.

Tesla shareholders, however, have been cautious. A non-binding proposal to invest in xAI did not receive enough support to pass in November 2025. Tesla’s board is still evaluating next steps, according to General Counsel Brandon Ehrhart. This mixed reception raises questions about whether the broader market is aligned with Musk’s vision for a merged AI and automotive future.

Why Did This Happen?

xAI’s integration into Tesla is not accidental. Grok, the AI chatbot, is already deployed in Tesla vehicles and has been tested as a potential interface for Optimus, Tesla’s humanoid robot. This suggests a long-term strategy to use xAI’s AI models to power both consumer and industrial robotic applications.

Musk has long emphasized the importance of AI in his business strategy. xAI’s recent expansion into Memphis, Tennessee — with a projected investment of over $20 billion — underscores this commitment. The firm is also using a special-purpose vehicle to purchase Nvidia chips, indicating a need for significant computational resources.

How Did Markets React?

xAI’s financial performance has been mixed. While its quarterly revenue nearly doubled to $107 million in the third quarter of 2025, its EBITDA losses have exceeded initial projections. The firm had forecast a $2.2 billion loss for the year, but by September, it was already at $2.4 billion.

The company’s valuation has remained high at $230 billion, supported by a $20 billion equity round. However, investors are watching whether this valuation can be justified as xAI moves toward profitability. The company’s gross profit increased from $14 million in the second quarter to $63 million in the third, but this has not yet offset the cash burn.

What Are Analysts Watching Next?

xAI’s ability to control Grok’s misuse remains a key concern. Recent restrictions on image editing features and geoblocks in jurisdictions where generating certain content is illegal reflect efforts to avoid legal and reputational risk. California’s attorney general launched an investigation into xAI following reports of deepfake content generated by Grok.

Tesla’s Energy division has also drawn attention. As automakers like Ford and General Motors move into energy storage, Tesla’s early investments in the sector could give it an edge. Energy storage margins are currently higher than those in the automotive business, and this could become a more significant revenue stream if EV demand slows.

Investors are also watching whether Tesla’s board will pursue a deeper connection with xAI. Although a shareholder vote on an investment in xAI failed, the board is still considering options. A formal partnership could provide Tesla with a steady source of AI innovation, but it could also raise questions about governance and risk.

Ultimately, the future of xAI and Tesla will depend on whether the market is willing to support Musk’s integrated vision. For now, xAI continues to burn cash, and its long-term viability will depend on its ability to develop profitable AI applications — not just for robots, but for a broader range of consumer and industrial uses.