xAI is in urgent need of financial support, while Tesla is sitting on tens of billions in cash. It seems perfectly logical for Elon Musk to integrate the two companies.
Recently, almost everyone in Silicon Valley has realized that artificial intelligence research and development is incredibly expensive. While leading startups are racing to establish their presence, none have yet achieved profitability. Even the AI company led by the world's richest man cannot escape this reality. Precisely for this reason, I predict Elon Musk will take a major step next year to secure xAI's funding stream—by selling it to the profitable core entity within his business empire: Tesla.
To compete for top AI talent and build massive data centers for training and running the Grok large language model, xAI's funding requirements are enormous. It is reported that the company is currently burning through $1 billion per month. Although xAI has procured Nvidia chips through external channels, it will need substantial capital for years to come to compete with leading AI firms. Companies like Google and Meta Platforms fund their AI research with profits from their core businesses; meanwhile, startup competitors like OpenAI and Anthropic have achieved greater scale in commercializing their models and might be more attractive to investors. (However, Musk's personal influence remains significant, and some investors would fund his companies regardless.)
At the same time, Tesla held over $40 billion in cash at the end of the third quarter. Admittedly, the automaker needs some of these funds for cutting-edge projects like the Cybercab and Optimus robot, and to address potential profit declines in its core electric vehicle business in the coming years. But compared to xAI, Tesla's financial health is far less dependent on external financing.
Musk has recently mentioned on multiple occasions that Tesla, xAI, and SpaceX are "heading towards convergence," with collaboration between the three companies already intensifying. Tesla has integrated the Grok model into its vehicles and the Optimus robot; xAI's data centers utilize Tesla's Megapack battery storage systems; and key executives and technical talent frequently move across Musk's corporate empire. More importantly, SpaceX has already invested in xAI, and Tesla has indicated it is considering an investment.
Another possibility is an acquisition by SpaceX, but I believe this is far less feasible than a Tesla acquisition for several reasons, including U.S. restrictions on defense contractors like SpaceX—which prohibit them from hiring non-U.S. citizens. These restrictions have already hampered collaboration between SpaceX and xAI, given that xAI employs a large number of foreign engineers.
Beyond alleviating xAI's financial pressure, a Tesla acquisition holds another appeal for Musk: a stock-based deal would almost certainly solidify his controlling stake in Tesla, as his ownership percentage in xAI is higher than his stake in the automaker.
Furthermore, Musk has a precedent for consolidating his companies. In March of this year, xAI completed its acquisition of the platform X (formerly Twitter). One more integration would hardly be out of character.
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