The Story Behind Elon Musk and AI: Why He Left OpenAI and Created xAI

On Wednesday, The Wall Street Journal reported that OpenAI, the startup behind ChatGPT, is in talks to raise several billion dollars in a new funding round.

The round is said to be led by Thrive Capital, with Apple and Nvidia also reportedly in negotiations to invest. Existing shareholder Microsoft is also expected to commit additional capital to OpenAI.

If the talks are completed, OpenAI’s valuation would reach around $100 billion, up about $20 billion from eight months ago.

Microsoft, Nvidia, and Apple all appear to be moving to build a tight relationship centered around OpenAI.

So why isn’t Elon Musk investing in OpenAI—especially when he has repeatedly insisted that Tesla is an AI company?

Back in April, Musk told reporters and investors, “We are an AI and robotics company. If we are valued in any other way, it becomes impossible to give the right answers to the questions being asked.”

If you look at Tesla’s financial statements, you can see that the company is spending more on GPUs purchased from Nvidia than on launching new vehicle lines. At the same time, even after cutting vehicle prices, Tesla’s sales are declining.

This suggests that Musk’s attention is gradually drifting away from Tesla’s core business.

It feels a bit like watching Facebook rebrand itself as Meta and try to pivot into a new field. Whether Musk’s focus on AI proves right or wrong, one thing is clear: at a time when so many tech companies are eager to invest in OpenAI, why is Musk not even interested?

Did you know? Elon Musk is actually one of OpenAI’s co-founders.

In my view, Musk is unlikely to show any interest in OpenAI going forward.

There’s an interesting backstory here.

In 2012, Elon Musk met DeepMind CEO Demis Hassabis in the company cafeteria and discussed the potential and risks of AI technology. During this conversation, Hassabis warned Musk that advances in AI could pose a potential threat to humanity. This meeting became a key moment that heightened Musk’s sense of alarm about AI.

Prompted by his conversation with Hassabis, Musk invested $5 million in DeepMind. He said it was to keep an eye on DeepMind’s AI research and to help prevent its potential threats.

The “friend” Musk said he would talk to was Google CEO Larry Page. Musk and Page had been close friends for a long time. Musk’s goal was likely to raise more capital and invest in multiple AI companies in order to monitor them.

At Elon Musk’s birthday party in Napa Valley, a small quarrel broke out between Musk and Larry Page.

They clashed over the risks that could arise as artificial intelligence advances.

As a result, Larry Page called Elon Musk a “speciesist,” accusing him of being biased in favor of his own species.

In late 2013, Musk was shocked to hear that Google CEO Larry Page was planning to acquire DeepMind. Worried that Google would be overly optimistic about AI and overlook its dangers, Musk tried to block the acquisition by raising funds with his friend Luke Nosek, but he failed.

In 2014, Google ultimately went ahead and acquired DeepMind.

Following Musk’s suggestion, Larry Page did set up a safety committee, but it met only once and never convened again.

To prevent Google from becoming the center of AI, Musk co-founded OpenAI with Sam Altman. The aim was to keep Google from securing a dominant position in the AI field.

At the same time, they decided that it would be better to keep any single company from having too much control by fostering competition, so they founded OpenAI as a nonprofit and made its AI technology open source, with the goal of developing multiple independent AIs rather than one monopolistic AI.

Over time, Musk felt that OpenAI’s development pace was sluggish, and he proposed a plan to integrate it with Tesla’s self-driving AI technology. But OpenAI’s board opposed a merger with Tesla, whose commercial objectives conflicted with OpenAI’s nonprofit mission, and Musk ended up leaving OpenAI.

After Musk left, OpenAI transitioned into a for-profit company. No, this was not a move just to spite Musk.

It was because of the financial resources that are inherently required for AI research. Although it began as a nonprofit, it became increasingly clear that AI research and development demand enormous amounts of capital. High-performance computing hardware, cloud services, and top-tier talent are all essential for AI research—and all of that costs a lot of money.

So in 2019, OpenAI introduced the “capped-profit” model.

A capped-profit model limits returns once profits exceed a certain threshold. It was the compromise they reached while trying to strike a balance between for-profit and nonprofit structures.

It was at this point that Microsoft invested $1 billion in OpenAI, becoming its key partner. Thanks to this investment, OpenAI secured the funding needed to build large-scale AI models like GPT-3 and was able to commercialize them through Microsoft’s Azure platform.

As OpenAI shifted into a partially for-profit structure, it stopped releasing its AI technology as open source and began operating in a closed manner.

After OpenAI’s commercialization, Musk felt that the AI industry was moving in a direction that diverged from the goals he had in mind when he first founded OpenAI. In response, he launched a new AI company, xAI, and began competing directly with OpenAI.

Elon Musk has stressed that xAI is an AI company that puts safety first. He built the team with talent from rivals such as OpenAI, Google, DeepMind, and Microsoft, and rolled out its own chatbot, Grok.

In other words, he genuinely intends to go head-to-head with OpenAI.

At the end of the year he founded xAI, Musk appeared on the Lex Fridman podcast and said he “wanted to make up with Larry Page.” Page still hasn’t responded to this olive branch. Musk once tried to throw a wrench into Google’s new business plans, but now that he dislikes the direction OpenAI is taking, you get the sense he may be trying to side with Google this time.

This is precisely why, as mentioned earlier, Elon Musk has no reason to stay interested in OpenAI going forward.

Musk believes that only by keeping each other in check through competition can we prevent a structure in which Larry Page dominates the market. In the end, Google ended up in a competitive relationship with OpenAI, so it did not immediately come to dominate the AI market. But in the process, OpenAI turned its open source work closed and effectively became a “new Larry Page.” In other words, for Musk, OpenAI is not a partner to work with, but a rival that needs to be pulled down from the throne.

Of course, one could argue that calling OpenAI the new Larry Page is a stretch, since its core mission as a nonprofit means it will not directly “dominate” the market.

However, we need to recognize that OpenAI and large, for‑profit corporations have already become far too intertwined. The capped‑profit model, which limits returns, is a major constraint for companies tied to OpenAI as they compete with Google or Amazon. Over time, OpenAI’s pursuit of nonprofit ideals may become little more than a hollow slogan.

We don’t know whether Elon Musk really founded OpenAI out of this sense of alarm, or whether he launched xAI to prevent a winner‑takes‑all outcome. We can’t read his mind.

What is clear, however, is this: the more OpenAI restructures its organization, the fiercer competition in the AI market will become.

Investment will turn more aggressive, and Google will race hard to catch up. Will AI once again hit the accelerator on its pace of progress? It will take careful thought to figure out which companies stand to benefit the most.