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The artificial intelligence company he founded three years ago lost six co-founders, is cutting staff and is far behind 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 are gone.
The company is cutting staff. Musk himself acknowledges that his flagship chatbot, Grok, is behind its main competitors. And for at least the second time, Musk has stated that xAI must be rebuilt from the ground up.
“It wasn’t built right the first time, so it’s being rebuilt from the ground up.” Musk said this week, less than six weeks after completing a $1.25 billion merger between xAI and SpaceX.
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The comment came as reports from the Financial Times and CNBC confirmed a wave of departures among xAI’s senior engineering staff, with Tesla and SpaceX executives reportedly being sent to audit teams and identifying underperformers.
The most recent departures, researcher Zihang Dai and engineer Guodong Zhang, follow the February departure of Jimmy Ba, 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 in poor shape, according to several 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 become 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 staff cited in an FT report. The gap has become a source of internal frustration: Engineers who joined xAI expecting to be on the frontier instead find themselves chasing a moving target set by competitors with more data, more investment, and fewer exits.
In an attempt to close the gap, xAI announced hiring for Cursor, the AI-powered coding environment that has gained a devoted following among developers. It’s unclear, at the very least, whether transplanting talent from one company to another can solve what appear to be deeper structural and cultural problems at xAI.
A $1.25 trillion question
The moment is delicate. The SpaceX-xAI merger, valued at $1.25 trillion, was proposed 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 appear more complicated in the context of a recognized rebuild and an ongoing talent crisis.
xAI has also been under regulatory scrutiny in several countries after its Grok image generator was found to produce non-consensual intimate images with minimal safeguards. The company has addressed some of those concerns, but the reputational damage has complicated its pitch to enterprise customers who would otherwise have been considering Grok as an alternative to OpenAI or Anthropic products.
Musk’s companies have been rebuilt before. Tesla was months away from insolvency when it launched the Model 3. SpaceX had three rocket failures before its fourth mission was successful. The question hanging over xAI’s third act is whether the pattern holds for an AI lab in an era where the competitive landscape changes every few months.
