Musk's xAI in Crisis: Major Overhaul to Compete with OpenAI

A Necessary Overhaul at xAI

Elon Musk has embarked on a significant reorganization of xAI, his deep learning lab, which was founded three years ago with 11 co-founders. Today, only two of them, Manuel Kroiss and Ross Nordeen, remain in their positions. Musk presents this overhaul as a deliberate effort to correct initial construction mistakes.

Musk stated on his social media platform, X, that "xAI was not built correctly the first time, so it is being rebuilt from the ground up." However, according to him, this reconstruction is not going smoothly.

Departures and Challenges

Competitive pressure is intense. This week, Zihang Dai and Guodong Zhang, two of xAI's co-founders, left the company. Their departure follows Musk's criticisms regarding the performance of the company's coding tools, which do not effectively compete with Claude Code from Anthropic and Codex from OpenAI. Musk indicated that a general meeting took place on Wednesday to discuss ways to catch up, with the goal of achieving this by mid-year.

Importance of Coding Tools

Coding tools are crucial for xAI as they represent significant revenue potential. Although Grok, xAI's language model, initially attracted users due to lax regulations on the production of sexual and abusive images, the real business opportunity lies in the realm of coding tools. xAI's delay in this area is therefore more than just a perception issue; it is a major business challenge.

Restructuring and Recruitment

The personnel reorganization at xAI is not limited to this week. A month ago, 11 senior engineers, including two co-founders, left the company following changes that Musk described as a necessary reorganization to adapt to a larger-scale operation. However, this effort has proven insufficient. The Financial Times reported that executives from SpaceX and Tesla have been integrated into xAI to evaluate employees and lay off those who do not meet the criteria.

Musk, with the help of Baris Akis, has also begun reviewing rejected job applications to identify potential talents that may have been overlooked. "My apologies," he added, addressing those he had ignored.

New Arrivals and Future Projects

On the recruitment front, there are encouraging signs. Andrew Milich and Jason Ginsberg have joined xAI from Cursor, an AI coding tools company, where they were responsible for product engineering. Unlike xAI, Cursor relies on cutting-edge labs to access the AI models it uses. Their decision to join xAI could signal the importance of direct access to state-of-the-art language models and the computing resources needed to operate them. It also suggests that xAI's main asset, its own cutting-edge model, remains an attractive draw.

Pressure and Outlook

The pressure to show results is both external and internal. Now that xAI is part of SpaceX, and with a public offering of SpaceX shares expected, the cash-consuming unit is under pressure to demonstrate real adoption of Grok, its language model. A struggling AI division is not the narrative Musk wants investors to read.

In the long term, Musk is betting on something bigger than coding tools. xAI's Macrohard project — Musk is convinced that the name is "a fun reference to Microsoft" — aims to create an AI agent capable of performing everything a office worker can do on a computer. Toby Pohlen, chosen to lead the project in February, left a few weeks later, and this week, Business Insider reported that Macrohard is on hold.

Musk's response has been to call on another of his companies for the project. He revealed for the first time that Macrohard is a joint effort with Tesla, which is also developing a complementary agent called "Digital Optimus" — a reference to Tesla's humanoid robot Optimus. In Musk's description, the xAI language model would guide the Tesla agent as it performs tasks.

This is ambitious; it is also not unique. On the contrary, the vision is not far removed from what Perplexity — an AI-powered search engine — is doing with its new offering "Everything is Computer," which aims to provide business users with a dedicated "digital proxy" capable of orchestrating their digital tasks. This also echoes what entrepreneur Peter Steinberger is currently working on at OpenAI, after creating the popular personal agents of OpenClaw.