By William Gavin
Half of xAI’s co-founders have left the company over the last few months as the generative AI firm has lost some ground to rivals
Elon Musk is overhauling artificial-intelligence startup xAI.
Elon Musk says his three-year-old artificial-intelligence startup needs to start over as yet another founding member departs.
The startup “was not built right first time around, so is being rebuilt from the foundations up,” Musk said Thursday on X, a social-media platform owned by xAI.
“Same thing happened with Tesla (TSLA),” he added, referring to the electric-vehicle company he’s led as CEO since 2008. Musk was one of Tesla’s early investors but clashed with the company’s leaders and fought in court to be named a co-founder of the company.
The admission that xAI was “not built right” came just weeks after Tesla agreed to invest $2 billion in xAI, which was acquired by Musk’s SpaceX just days later. This week, U.S. regulators approved an investment from Tesla in SpaceX, officially tying Musk’s companies closer together.
xAI has hemorrhaging talent. In addition to Musk, 12 other people helped launch the company three years ago. Of them, only Manuel Kroiss and Ross Nordeen are still at xAI after Guodong Zhang announced his departure on Thursday.
“Wild journey past three years but excited about next chapter,” Zhang, who was a leader of xAI’s Grok Code and Grok Imagine video-generation projects, wrote on X.
Fellow Imagine lead Haotian Liu also said he has left the company, leaving just Chaitu Aluru leading the division focused on AI-images, judging by a February organizational chart published by xAI. Kroiss is overseeing the coding division, according to the chart.
Read: SpaceX’s stock could trade like Tesla ‘on steroids’ after its IPO, analyst says
Zihang Dai, another xAI co-founder and a former researcher at Alphabet (GOOGL)-owned Google, has also reportedly left the company. Including Dai and Zhang, six co-founders have left xAI since January. One, Greg Yang, cited health issues.
Toby Pohlen, another co-founder, was put in charge of xAI’s “Macrohard” project that aims to build the sort of digital agents that Musk has said could replace companies like Microsoft (MSFT). Pohlen left the company last month; Musk said Wednesday the program has shifted to a joint project with Tesla.
Musk has brought in “fixers” from SpaceX and Tesla to audit xAI and overhaul its workforce, according to The Financial Times, which cited people familiar with the matter. Zhang told colleagues he was being blamed for issues with Grok Code, the Financial Times reported.
“There’s people who are better suited for the earlier stages of the company, and less suited for the later stages,” Musk said at an xAI all-hands meeting last month.
The shake-ups come as xAI has found itself falling behind major rivals – including Google, Anthropic and OpenAI – in at least one area.
On Wednesday, Musk said at the Abundance Conference that xAI’s “Grok is currently behind in coding,” although he claimed that it “should probably” beat rivals by mid-2026. Another rival, Meta Platforms (META), has also found itself lagging behind the competition and delayed the launch of its new foundational AI model, according to the New York Times.
Read: You can invest in SpaceX before its IPO – but should you?
XAI has also been the center of controversy, including over a lack of safety guardrails for the Grok model that allowed the chatbot to produce illegal content. Additionally, the European Commission recently fined xAI over its blue-check verification system.
Controversy and poor performance could hinder Musk’s attempt to take SpaceX public as soon as June. SpaceX was recently valued at $1.25 trillion, with xAI accounting for $250 billion worth of that valuation.
The broader company reportedly aims to raise as much as $50 billion at a $1.75 trillion valuation. It’s set to file confidentially for an initial public offering as soon as this month, according to Bloomberg.
On Thursday, xAI hired two senior leaders from Cursor, an AI-coding startup reportedly in talks to raise funds at a $50 billion valuation. Andrew Milich and Jason Ginsberg had earlier created Skiff, which promised encrypted and secure file storage, and was acquired by AI firm Notion in 2024.
Musk said on Thursday that xAI would reach out to past “promising” people who had applied for jobs at the firm and been rejected. An xAI recruiter described the approach as “Cut the fat. Build the muscle,” in a Friday post on X.
See: Now that SpaceX and xAI have merged, is Tesla next?
-William Gavin
This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
03-13-26 1400ET
Copyright (c) 2026 Dow Jones & Company, Inc.
