Tesla disclosed in a letter to shareholders that it invested $2 billion in xAI on Wednesday. This startup is behind the Grok chatbot and also owns Musk's social media company X. Other previously disclosed investors in xAI include Valor Equity Partners, Fidelity, the Qatar Investment Authority, as well as NVIDIA and Cisco as "strategic investors."

This is a true circular transaction, and Tesla shareholders voted against this deal last year. In November, shareholders were asked in a non-binding measure to allow Tesla's board to authorize the investment in xAI. According to Bloomberg, approximately 1.06 billion votes were in favor, while 916.3 million were opposed. Although this appeared to pass, under Tesla's charter, abstentions are counted as opposing votes, so the measure was rejected.

Tesla proceeded nonetheless and presented arguments supporting the investment. Tesla's rationale appears to be linked to the alignment between xAI and its latest Master Plan—these companies are set to collaborate more closely.

"As outlined in Master Plan Part 4, 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)," the shareholder letter stated. "In this context, as part of Tesla's broader strategy under Master Plan Part 4, Tesla and xAI have also signed a framework agreement regarding the investment."

Tesla indicated that the agreement builds upon the existing relationship with xAI, "providing a framework for evaluating potential AI collaborations between the companies." Tesla already supplies its Megapack batteries to xAI's data centers, a fact Musk confirmed last year, and the company has integrated xAI's Grok chatbot into some of its vehicles. Bloomberg also reported that xAI informed investors of plans to develop AI for humanoid robots like Tesla's Optimus.

In the letter to shareholders, Tesla highlighted these and other developments in physical AI and robotics, including plans to develop its Optimus robot, Semi trucks, and other automation capabilities. The company overall exceeded Wall Street expectations for earnings and revenue, but profits declined by 46% last year.

"The investment and related framework agreement aim to enhance Tesla's capabilities in developing and deploying AI products and services at scale into the physical world," Tesla stated in the shareholder letter.

The investment is expected to be completed in the first quarter.