The AI company he founded three years ago has lost six co-founders, is slashing staff, and trails badly in coding benchmarks. Musk’s remedy: rebuild from scratch, for the second time.
In March 2023, Elon Musk launched xAI with 12 co-founders and a stated ambition to build “the most powerful AI in the world.” Three years later, 10 of those founders have gone.
The company is cutting staff. Its flagship chatbot Grok is acknowledged, by Musk himself, to lag behind its main competitors. And for at least the second time, Musk has declared that xAI must be rebuilt from the foundations.
“It was not built right first time around, so is being rebuilt from the foundations up,” Musk said this week, less than six weeks after completing a $1.25 trillion merger between xAI and SpaceX.
The 💜 of EU tech
The latest rumblings from the EU tech scene, a story from our wise ol' founder Boris, and some questionable AI art. It's free, every week, in your inbox. Sign up now!
The comment came as reporting from the Financial Times and CNBC confirmed a wave of departures among xAI’s senior engineering staff, with Tesla and SpaceX executives reportedly sent in to audit teams and identify underperformers.
The most recent exits, researcher Zihang Dai and engineer Guodong Zhang, follow the February departure of Jimmy Ba, one of the company’s highest-profile AI researchers. The cumulative loss, described by insiders as a combination of burnout and Musk’s management style, has left morale at the company in poor shape, according to multiple people familiar with the situation.
The coding problem
The immediate catalyst for this latest round of disruption appears to be Grok’s performance on coding tasks. Musk said at a conference this week that “Grok is currently behind in coding”, a candid admission given that AI-assisted software development has emerged as perhaps the most commercially valuable near-term application of large language models.
Grok trails Anthropic’s Claude Code and OpenAI’s Codex in coding benchmarks, according to xAI staffers cited in FT reporting. The gap has become a source of internal frustration: engineers who joined xAI expecting to be at the frontier instead find themselves chasing a moving target set by competitors with more data, more investment, and fewer departures.
In an attempt to close the gap, xAI announced hires from Cursor, the AI-powered coding environment that has built a devoted following among developers. Whether transplanting talent from one company to another can resolve what appear to be deeper structural and cultural problems at xAI is, at minimum, unclear.
A $1.25 trillion question
The timing is delicate. The SpaceX-xAI merger, valued at $1.25 trillion, was framed in part as a way to stabilise xAI’s ambitions by giving it access to SpaceX’s capital, compute infrastructure, and engineering discipline. Tesla also invested $2 billion in xAI earlier this year. Both investments now look more complicated against the backdrop of an acknowledged rebuild and a continuing talent crisis.
xAI has also been under regulatory scrutiny in multiple countries after its Grok image generator was found to produce non-consensual intimate imagery with minimal safeguards. The company has addressed some of those concerns, but the reputational damage has complicated its pitch to enterprise customers who might otherwise have been considering Grok as an alternative to OpenAI or Anthropic products.
Musk’s companies have been rebuilt before. Tesla was months from insolvency when it launched the Model 3. SpaceX famously had three rocket failures before its fourth mission succeeded. Whether the pattern holds for an AI lab in an era where the competitive landscape shifts every few months is the question hanging over xAI’s third act.
Get the TNW newsletter
Get the most important tech news in your inbox each week.