The daunting side of the question posed by Elon Musk rests on the fact that Tesla had just reported its lowest profit margin in five years.
Elon Musk has just released a voting poll on X, asking his followers if Tesla Inc (NASDAQ: TSLA) should invest $5 billion into his Artificial Intelligence (AI) startup xAI. According to him, he was only “testing the waters” for the potential investment. If there were to be any such investment, the responsibility to decide will likely rest with the Tesla stakeholders.
Should Tesla invest $5B into @xAI, assuming the valuation is set by several credible outside investors?
(Board approval & shareholder vote are needed, so this is just to test the waters)
— Elon Musk (@elonmusk) July 24, 2024
Elon Musk Secures $6B for xAI
The decision to post the question on X came after Musk was asked about the possibility of Tesla investing in xAI during an earnings call. He was probed about the integration of the Grok chatbot into Tesla software. Musk noted he’s open towards the idea of the investment but reminded his audience that the decision power lies in the hands of the shareholders and the Board.
Results from the poll shows that most of Musk’s followers are in support of the potential investment. With hours left on the clock, 68.7% voted in favor of Tesla’s $5 billion investment in xAI and the remaining 31.3% voted against the move. Should the company decide to make the investment in xAI, the AI startup would bag a more than $20 billion market valuation.
Just at the beginning of the year, Elon Musk sought out an ambitious $6 billion in funding from global investors. The firm projected that this funding will raise xAI valuation to about $18 billion, according to Musk. By May, xAI successfully raised the $6 billion in a Series B funding round. The round saw participation from Andreessen Horowitz (a16z) and Sequoia Capital amongst others.
Tesla Earnings Report Shows Low-Profit Margin
The daunting side of the question posed by Elon Musk rests on the fact that Tesla had just reported its lowest profit margin in five years. Instead of the 8% profit margin that analysts projected for Q2 2024, the company ended up with 6.3%. The dip came as a result of frequent price cuts and increased spending on AI projects.
This suggests the likelihood that the shareholders of the electric car manufacturer may not welcome the idea of another AI project spending via xAI. Although, Tesla’s earnings reports have seen a mix of sinking and rising revenue in the last year. In January when the firm revealed its Q4 2023 earnings report, it disclosed a revenue of $25.17 billion, marking a 3% increase year-over-year but falling short of the anticipated $25.62 billion.
This fall from expectation comes of as historic when compared with Q3 2023 period. Tesla’s Q3 earnings saw its profits of $23.35 billion narrowly miss Zacks Investment Research’s estimate of $24.38 billion. Oftentimes, such reports impact the price of its stock. At the time of this writing, Tesla shares have registered a 2.04% decrease with its price changing hands for $246.38.
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