With only two of its original 11 co-founders remaining, xAI faces mounting pressure to deliver competitive AI products as rivals pull ahead.
A Second Overhaul in Two Months
Elon Musk's artificial intelligence venture, xAI, is undergoing yet another sweeping restructuring — its second major overhaul in as many months — as the company struggles to keep pace with industry leaders Anthropic and OpenAI. The upheaval has left the three-year-old startup with just two of its original eleven co-founders still on board, raising serious questions about leadership stability and strategic direction at one of the most heavily funded AI labs in the world.
Musk Admits xAI Was 'Not Built Right'
"xAI was not built right first time around, so is being rebuilt from the foundations up," Musk wrote on his social media platform X on Thursday. It was a blunt admission from a billionaire who has positioned himself as the tech industry's most ambitious disruptor, and it came on the heels of the departure of two more co-founders, Zihang Dai and Guodong Zhang, who left after Musk expressed frustration that xAI's coding tools were failing to compete with Anthropic's Claude Code and OpenAI's Codex.
SpaceX and Tesla Executives Parachute In
The exits are far from isolated. Last month, eleven senior engineers, including two other co-founders, departed the company in what Musk characterized as a reorganization suited to a larger business. But the changes have not stopped there. According to the Financial Times, executives from SpaceX and Tesla have been deployed to xAI to evaluate remaining employees and terminate those who fail to meet standards. The remaining co-founders, Manuel Kroiss and Ross Nordeen, now face the daunting task of rebuilding while simultaneously shipping products.
Coding Tools: Where the Money Is — and Where xAI Is Losing
The urgency behind this restructuring is intensely competitive. AI coding tools have emerged as the primary revenue engine for frontier labs, and xAI's Grok model has fallen behind. While the company attracted a surge of early users drawn to its permissive content policies around AI-generated imagery, coding tools are seen as the key revenue-generating tech for AI labs. Musk acknowledged this gap at an all-hands meeting on Wednesday, predicting xAI could close the distance with rivals by mid-2026.
Musk Personally Reviews Rejected Job Applications
To rebuild its depleted talent pool, Musk is casting a wider net. He revealed on X that he and colleague Baris Akis are personally reviewing previously rejected job applications, looking for promising candidates who should have had a chance to interview. "My apologies," Musk wrote, addressing the applicants his company had ghosted. xAI currently employs just over 5,000 people, compared to more than 7,500 at OpenAI and roughly 4,700 at Anthropic.
Cursor Engineers Jump Ship to xAI
There is at least one bright spot on the recruitment front. Andrew Milich and Jason Ginsberg, who jointly led product engineering at the popular AI coding startup Cursor, are joining xAI. Their decision may signal the importance of direct access to LLM and computing resources — and suggests that despite the turmoil, xAI's frontier model and massive infrastructure remain a compelling draw for top talent.
Macrohard Project Stalls Before It Starts
Beyond coding tools, Musk has even grander ambitions. The company's Macrohard project — a name Musk insists is a humorous reference to Microsoft — aims to build an AI agent capable of performing any white-collar task on a computer. But that initiative has also hit turbulence. Its appointed leader, Toby Pohlen, departed within weeks of his appointment in February, and Business Insider reported this week that Macrohard has been put on pause.
Tesla's 'Digital Optimus' Joins the Fight
Musk's response has been to merge the effort with Tesla, revealing for the first time that Macrohard is now a joint project. Tesla is developing a complementary agent called "Digital Optimus" — a nod to its humanoid robot program — with xAI's language model providing the intelligence. The vision is sweeping but not unique: Perplexity is pursuing a similar concept with its "Everything is Computer" offering, which aims to offer enterprise users a dedicated digital proxy that can orchestrate their digital tasks.
The Clock Is Ticking for Investors
The financial stakes could not be higher. With xAI now folded into SpaceX and a public offering of SpaceX shares on the horizon, the cash-burning AI division must demonstrate tangible progress. A stumbling AI business is precisely the narrative Musk cannot afford as he courts investors. Whether this latest reset delivers results or merely prolongs the cycle of disruption remains the critical question for xAI's future.
