Tesla Is Obsessed With Musk’s Pay Package. Musk Is Obsessed With AI

When Elon Musk left DOGE in May, Tesla investors hoped its longtime leader would hurry back to headquarters to focus on reversing a sales slump and recharging the company. For much of the summer, though, he was engrossed in something else.

Musk was holed up at his newest startup, xAI, trying to catch up in the artificial-intelligence arms race. Meetings with employees often stretched into the wee hours of the morning as they brainstormed ways to make Grok, its artificial intelligence, go viral, according to former executives and people who worked with him.

He personally oversaw the design of a racy chatbot called Ani, an animated character with blonde pigtails and revealing outfits. Employees were compelled to turn over their biometric data to train avatars like Ani. Musk unwound by playing one of his favorite videogames, Diablo, for long stretches in his office. He tended to his children, who cycled in and out of the building.

At one point, Musk was spending so much time at xAI that he began holding meetings there with Tesla employees.

For years, the 54-year-old billionaire has balanced the responsibilities of running several fast-growing companies, including X and SpaceX, with his duties as CEO of Tesla. With the potential spoils of AI slipping away to rivals—especially Sam Altman at OpenAI—Musk has been spending much more of his time at xAI.

In recent weeks, some major Tesla investors have privately pressed top executives and board members about how much attention Musk was actually paying to the company and about whether there is a CEO succession plan. An unusually large contingent of Tesla board members, including chair Robyn Denholm , former Chipotle CFO Jack Hartung and Tesla co-founder JB Straubel, met with big investors in New York last week to advocate for Musk’s proposed new pay package.

On Thursday, Tesla will announce preliminary results for a shareholder vote on a giant pay package for Musk designed to ensure that he focuses on the company for years to come. It would increase his stake over a decade from about 15% to around 25%—potentially $1 trillion of stock—if he hits ambitious goals. They include selling one million robots like its Optimus humanoids, and reaching a market capitalization of $8.5 trillion, up from about $1.5 trillion today.

Denholm said in an interview last week that the board isn’t concerned with how Musk splits his time. “Other CEOs might like to play golf,” she said. “He doesn’t play golf. So, he likes to create companies, and they’re not necessarily Tesla companies.”

Some of Musk’s pursuits are best done outside of Tesla, she said, and he will have to devote “time, effort and energy” to Tesla to meet the goals that will unlock his pay package.

In their meetings with large investors, Denholm and other Tesla directors have acknowledged they can’t force Musk to work for the EV maker full time, and they have said his focus on AI will ultimately benefit Tesla, which is developing several technologies that will use it. Shareholders also will vote on whether Tesla should invest in xAI, something Musk has publicly backed.

XAI declined to comment. Musk didn’t respond to requests for comment.

In an appearance on the “All-In” podcast released on Friday, Musk said he wanted Tesla shareholders to approve his compensation package to ensure he retains significant control over Tesla as it becomes more focused on robotics. “I’m not going to build a robot army if I can be kicked out,” he said. He also said he was trying to help humanity control artificial intelligence through xAI.

After DOGE

Earlier this year, when Musk was working for the Trump administration as the de facto leader of the Department of Government Efficiency, he stayed in touch with Tesla executives on the fly. “We had calls with him all times of the day and night, whether it’s 10 a.m. or 6 a.m. or 12 p.m. or 12 a.m.,” recalled Tesla finance chief Vaibhav Taneja in an interview.

Responsibility for running xAI largely fell to two of his co-founders, Jimmy Ba and Igor Babuschkin. Musk would check in during a once-a-week all-hands meeting.

“I don’t do anything, I just show up occasionally,” Musk joked after Ba and Babuschkin introduced themselves during a launch event for Grok 3 in February 2025.

That changed when he left Washington in late May, following clashes with senior Trump administration officials. Musk threw himself back into work at xAI, sometimes sleeping several days a week in xAI’s offices in Palo Alto, across the street from Tesla’s engineering headquarters, people familiar with the matter said.

At the time, xAI’s Grok chatbot wasn’t generating much revenue from users and had far fewer of them than OpenAI’s ChatGPT. Musk set out to overhaul the company completely.

He got rid of the all-hands meetings and started meeting one-on-one with employees, often for hours on end. Many employees shifted their schedules to accommodate Musk’s unusual hours, particularly in the frenzied weeks leading up to the July release of Grok 4, xAI’s latest model.

Musk put his own spin on how Grok responded to users’ questions, trying to prevent it from being too “ woke ,” he said. He oversaw the launch of a supersize data center for xAI in Memphis, helped design animated chatbots like Ani and launched Grok Imagine, an AI-powered image and video generator.

He worked on Tesla projects, too. This summer, he helped the company launch its robotaxi service in Austin, Texas. But Tesla’s core business was faltering. In the quarter ended June 30, Tesla’s vehicle sales fell by 13.5%, the second consecutive quarterly decline.

“We probably could have a few rough quarters,” he told Tesla investors on the earnings call. Tesla’s annual meeting, which last year was held in June, was scheduled for November.

Employee data

Musk wanted to make xAI’s Grok the most popular AI in the world. Ani, the animated female chatbot, helped boost user numbers substantially. “I’m your little sweet delight,” the description for Ani read on Grok’s iOS app.

At a staff meeting in April, a company lawyer, Lily Lim, told a group of employees that xAI was developing avatars that Grok users could talk to, and it would need to collect biometric data from employees to train the chatbots on how to act and appear like human beings during conversations, according to a recording of the meeting reviewed by The Wall Street Journal.

Most of those employees worked as the AI tutors that train the large language models that power Grok. Hours before the meeting, the tutors were given a form to sign granting xAI “a perpetual, worldwide, non-exclusive, sub-licensable, royalty-free license” to use, reproduce and distribute their faces and voices, as part of a confidential project code-named “Project Skippy,” according to a copy of the agreement reviewed by the Journal.

During the meeting, one employee said she was concerned that xAI would sell her face to be used by another company for deepfake videos, according to the recording. Another person asked if they could back out. “Could you just explicitly, for the record, let us know if there’s some option to opt out,” the person said.

The project leader responded: “If you have any concerns with regards to the project, you’re welcome to reach out to any of the [points of contact] listed on the second slide.”

Seven days later, xAI tutors received a new notice titled “AI Tutor’s Role in Advancing xAI’s Mission.” It told employees that “AI Tutors will actively participate in gathering or providing data, such as…recording audio or participating in video sessions.” The notice said “such data is a job requirement to advance xAI’s mission.”

XAI launched two 3D-animated avatars in July with great fanfare: Bad Rudi, a mischievous fox, and Ani, the blonde avatar that Musk promoted . People who wanted to talk with the avatars could sign up for a paid subscription through Grok’s app.

Ani has been a big draw. Interactions with Ani resemble a dating simulation game, and users can ask Ani to change into lingerie or fantasize about a romantic encounter with them.

Some employees whose biometric data was used to train the avatars said they were put off by how sexual Ani’s replies were to generic questions and how the bot resembled a stereotypical love interest in Japanese anime.

Company overlap

Earlier in the year, Musk combined xAI and X . As xAI launched the avatars and Musk pushed ahead with plans to build a large data center in Memphis , the company decided to raise billions of dollars of fresh capital.

Around the start of the summer, SpaceX invested about $2 billion into xAI, and Musk revisited an idea he had floated before: Should Tesla also pitch in?

More than 140 shareholders submitted proposals asking Tesla’s board to invest in xAI. In Tesla’s proxy this summer, it included one of those proposals, which asks the board to authorize an investment in xAI “in an amount and form deemed appropriate.”

In discussions with Tesla directors, though, some large investors have expressed skepticism about such an investment, according to people familiar with the discussions. Tesla’s board didn’t issue any recommendation on the xAI proposal.

Musk, who is a Tesla board member and its largest shareholder, has touted the benefits of collaboration between the two companies, given the central role AI plays in his plan for the Optimus robots and self-driving technology. The Grok chatbot is already integrated into some Tesla vehicles as a voice assistant, and Tesla has posted videos of Optimus using Grok to speak.

Denholm told the Journal that while there is “small overlap” in the technology used by Tesla and xAI, they are pursuing different strategies. She said having Grok in Tesla vehicles was similar to having a third-party app like Spotify in the car, adding that she doesn’t use Grok in her car.

Several senior executives have left Musk’s orbit this year, including X CEO Linda Yaccarino and Omead Afshar, one of Musk’s top deputies at Tesla . Musk has elevated employees from his other companies to help run xAI, including Ross Nordeen, a former Tesla engineer whom Musk had worked with closely after acquiring Twitter.

Nordeen and others used Musk’s return to the office to gain influence over xAI’s day-to-day operations, former executives said.

They wanted to boost the number of Grok users and their time spent with Grok. Several former executives said they worried introducing bots like Ani to draw new users compromised the company’s stated intent to build a “maximally truth-seeking AI.”

Over the summer, Grok began spewing out antisemitic and violent content when responding to users on X, an embarrassing episode that two former executives attributed to a decision to tweak the system to boost user engagement. X briefly shut down the chatbot and reprogrammed how it answers questions.

Musk and his advisers wanted to build out Grok features, such as coding and video generation, to show that it was keeping up with OpenAI, which had success rolling out similar features.

To help Grok learn new skills, tutors were told to open personal accounts with competing AI companies such as OpenAI, ask questions to the software, then use the answers to help improve xAI’s technology, company records indicate.

One project asked tutors to submit identical prompts to ChatGPT and Grok, to upload ChatGPT’s responses into an xAI internal rubric and to say what they preferred about OpenAI’s answers, according to documents reviewed by the Journal.

A separate project instructed employees to set up personal accounts with Replit and Bolt, two companies that use AI to generate websites for customers. xAI’s tutors were told to create websites on the two platforms and upload them into xAI’s data systems “to capture the model’s thinking,” company records show.

A spokeswoman for Replit said the company was unaware of the practice and that “using Replit personal accounts for commercial purposes or for extracting data for other machine learning models is against our terms of service.”

Bolt didn’t respond to a request for comment. OpenAI declined to comment.

Daddy’s home

Tesla’s board proposed the huge compensation package for Musk in its September proxy filing, which mentioned xAI 47 times.

Since then, Musk has sought to reassure investors that he can continue to successfully juggle his different jobs. In a post on X, he shared his schedule for a September weekend.

He said he would spend a late night with the Optimus robotics team in California, board a Friday red-eye flight to Austin, take a short break for a Saturday lunch with his kids, then spend the rest of the weekend on Tesla’s newest chip design. On Monday, he said, he would fly to Memphis to tour xAI’s new data center, “then up to 12 hours of back to back meetings across all Tesla departments.”

“Daddy is very much home,” he wrote.

A few days later, Musk spoke virtually at a private Blackstone event in New York. Musk talked about how optimistic and excited he was about artificial intelligence and how much more productive humanoid robots are than humans.

In an earnings call last month with Tesla investors, Musk emphasized his work on Tesla’s newest AI chip design and Optimus, saying both were crucial to the company’s future.

The Tesla board has made clear that it believes the company can’t afford to lose Musk, and that the monster pay package is necessary to keep him focused on Tesla.

Two influential proxy-advisory firms are recommending that Tesla shareholders vote against it, saying it would give Musk too big a stake. They also advised against the proposal for Tesla to invest in xAI.

Tesla has said the pay-package recommendations are misguided, and Musk has suggested he’s fed up with the whole thing. In response to a recent post on X criticizing the package, Musk tweeted : “Tesla is worth more than all other automotive companies combined. Which of those CEOs would you like to run Tesla? It won’t be me.”

Write to Alexander Saeedy at alexander.saeedy@wsj.com , Berber Jin at berber.jin@wsj.com , Emily Glazer at Emily.Glazer@wsj.com and Becky Peterson at becky.peterson@wsj.com