The AI company he founded three years ago has lost six co-founders, is laying off staff and is making poor progress on coding benchmarks. Mask’s remedy: restore from scratch a second time.
In March 2023, Elon Musk launched xAI with 12 co-founders and stated that he intended to create “the world’s most powerful artificial intelligence”. Three years later, 10 of those founders left.
The company is laying off employees. His flagship chatbot Grok, which Musk himself admits is lagging behind its main competitors. And for at least the second time, Musk has stated that xAI needs to be rebuilt from the ground up.
“Since it was not built the first time, it is rebuilt from the ground up” Musk said this week, less than six weeks after one was completed The $1.25 trillion merger between xAI and SpaceX.
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The commentary was reported by the Financial Times and CNBC as confirming a wave of departures among xAI’s senior engineering staff, with Tesla and SpaceX executives being sent to audit teams and identifying underperformers.
The latest exits, researcher Zihang Dai and engineer Guodong Zhang, follow the February departure of Jimmy Ban, one of the company’s most high-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 sour, according to many people familiar with the situation.
Coding problem
The immediate catalyst for this latest phase of disruption appears to be Grok’s performance on coding tasks. “Groc is currently behind in coding,” Musk admitted candidly at a conference this week, given that AI-powered software development has emerged as perhaps the most commercially valuable near-term application of large language models.
According to xAI employees cited in the FT report, Grok follows Anthropic’s Claude Code and OpenAI’s Codex in its coding criteria. The gap has become a source of internal frustration: engineers joining xAI who expect to be on the frontier are instead chasing a moving target set by competitors with more data, more investment and less travel.
To bridge the gap, xAI has announced hiring from Cursor, an AI-powered coding environment that has built a loyal following among developers. It’s unclear, to say the least, whether moving talent from one company to another can solve the deeper structural and cultural problems at xAI.
The $1.25 trillion question
The timing is delicate. The $1.25 trillion SpaceX-xAI merger was set up in part as a way to stabilize xAI’s ambitions by giving it access to SpaceX’s capital, computing infrastructure and engineering discipline. Tesla also invested $2 billion in xAI earlier this year. Both investments now look more complicated amid confirmed restructuring and an ongoing talent crunch.
xAI has also come under regulatory scrutiny in multiple countries after its Grok image generator was found to produce unsatisfyingly intimate images with minimal security measures in place. The company has addressed some of those concerns, but the reputational damage has made it difficult for enterprise customers who might consider Grok as an alternative to OpenAI or Anthropic products.
Musk’s companies have been restructured before. It was months of bankruptcy when Tesla released the Model 3. SpaceX famously suffered three rocket failures before successfully completing its fourth mission. In an age where the competitive landscape changes every few months, whether there is a role model for an AI lab is the question that hangs over xAI’s third act.
