Elon Musk acknowledged this week that his artificial intelligence startup xAI “was not built right first time around” and said the company is now “being rebuilt from the foundations up.” The admission came less than six weeks after Musk merged xAI with SpaceX in a deal he valued at $1.25 trillion, and just two months after Tesla invested $2 billion into a $20 billion xAI funding round.
The statement followed the departure of two more co-founders, Zihang Dai and Guodong Zhang, who left the company this week. Their exits bring the total number of departed co-founders to 10 out of the 12 researchers who launched xAI alongside Musk in 2023. Only Manuel Kroiss and Ross Nordeen remain from the original founding team.
A Wave of Departures That Started Months Ago
The exodus accelerated in early 2026. University of Toronto professor Jimmy Ba announced his departure in February, followed closely by Tony Wu. Toby Pohlen left later that same month. Before them, Igor Babuschkin, Kyle Kosic, Christian Szegedy, and Greg Yang had already moved on. The pattern left xAI without much of the research talent that had attracted early investor interest and helped build Grok, the company’s AI chatbot.
Musk responded by saying he and Baris Akis, who leads engineering talent at xAI, “are going through the company interview history and reaching back out to promising candidates.” The company also announced two hires from Cursor, the AI-powered coding tool startup, as it tries to rebuild its technical leadership and compete more effectively with OpenAI and Anthropic.
Performance Gaps and a Competitive Squeeze
The restructuring comes at a difficult moment competitively. According to ARC-AGI benchmark data, xAI’s Grok model trails the latest offerings from Google, OpenAI, and Anthropic in both performance and cost efficiency. While Grok attracted attention for its willingness to engage with politically provocative prompts, the product has not kept pace technically with rivals that have invested billions in model development and research infrastructure.
Musk also recently unveiled a joint Tesla-xAI project called “Macrohard” or “Digital Optimus,” which pairs Grok’s large language model with a Tesla-developed AI agent that processes real-time screen video and keyboard inputs. The initiative signals an attempt to find new applications for xAI’s technology beyond its chatbot, but it arrives at a time when the company’s core research team has been gutted.
Billions Invested, Questions Remain
The financial stakes are significant. Tesla’s $2 billion investment in xAI’s Series E round in January valued the company at approximately $230 billion. That investment has since been folded into the SpaceX merger, converting into a minority SpaceX stake. Tesla shareholders have filed breach of fiduciary duty lawsuits over Musk’s involvement with xAI and what they allege is a diversion of resources from the automaker.
The co-founder departures also raise questions about talent retention in the AI industry more broadly. With billions of dollars flowing into AI startups in 2026, top researchers have no shortage of opportunities. The challenge of keeping founding teams together through rapid growth and strategic pivots is one that many startups face, though rarely at this scale or this publicly.
SpaceX is expected to go public later this year in what analysts predict will be a record IPO. Whether xAI’s rebuilding effort can restore investor confidence before that milestone remains an open question. For now, Musk is asking the market to trust that a company losing most of its founding researchers can be rebuilt into a credible competitor in the most capital-intensive technology race in a generation.
