The AI company founded by Musk three years ago is dealing with the loss of six co-founders, staff reductions, and poor coding performance. Musk’s solution: restart the company for the second time.
In March 2023, Musk started xAI with 12 co-founders aiming to create “the most powerful AI in the world.” Now, 10 founders have departed.
The company is cutting staff, and its main chatbot, Grok, is acknowledged by Musk to be behind its main competitors. For at least the second time, Musk has stated xAI needs a full rebuild.
“It wasn’t done right initially, so it’s being rebuilt from the ground up,” Musk said recently, following a $1.25 trillion merger between xAI and SpaceX.
This statement follows reports from the Financial Times and CNBC about senior engineering departures, with Tesla and SpaceX executives brought in to identify weak links.
The latest to leave were researcher Zihang Dai and engineer Guodong Zhang, following February’s departure of high-profile researcher Jimmy Ba. Factors like burnout and Musk’s management style have reportedly hurt company morale.
**The coding issue**
The latest upheaval seems tied to Grok’s coding task performance. Musk admitted Grok is “currently behind in coding” at a conference, acknowledging the commercial potential of AI-assisted software development.
Grok falls short of Anthropic’s Claude Code and OpenAI’s Codex in benchmarks, according to FT-cited xAI staffers. This shortfall has caused frustration among engineers who expected a leading-edge challenge rather than playing catch-up to better-funded and more stable competitors.
To address this, xAI has hired talent from Cursor, an AI coding environment popular among developers. It’s uncertain if this talent influx can solve what may be deep-rooted structural and cultural issues.
**A $1.25 trillion concern**
The timing is sensitive. The $1.25 trillion SpaceX-xAI merger was partly to stabilize xAI by leveraging SpaceX’s resources. Tesla also invested $2 billion in xAI earlier. Both investments now seem complicated amid the rebuild and talent crisis.
Furthermore, xAI faces regulatory scrutiny in several countries after its Grok image generator produced non-consensual intimate imagery with weak safeguards. Though some issues were addressed, reputational damage has challenged its appeal to enterprise customers who might have considered Grok over OpenAI or Anthropic products.
Musk’s companies have been rebuilt before. Tesla neared insolvency before launching the Model 3, and SpaceX had failures before a successful fourth mission. If this pattern will apply to xAI in a swiftly changing landscape remains the key question for its future.