Elon Musk’s AI venture xAI is undergoing its most significant restructuring yet, with the departure of two more co-founders this week bringing the number of original co-founders still at the company down to just two out of 11.
Musk acknowledged the turmoil publicly, writing on X that xAI “was not built right first time around, so is being rebuilt from the foundations up.” The immediate trigger was frustration over the company’s AI coding tools, which Musk said are not keeping pace with Anthropic’s Claude Code or OpenAI’s Codex. An all-hands meeting on Wednesday focused on how to close that gap, with Musk predicting xAI could catch up by mid-year.
The departures of co-founders Zihang Dai and Guodong Zhang follow a larger wave of exits last month, when 11 senior engineers including two other co-founders left the company. SpaceX and Tesla executives have reportedly been brought in to evaluate remaining staff and dismiss underperformers. Only co-founders Manuel Kroiss and Ross Nordeen remain alongside Musk.
Programming assistants are now the primary revenue driver for frontier AI labs, making xAI’s lag a direct business problem. While the company saw a surge of early users drawn by Grok’s permissive approach to generating sexual and controversial imagery, that has not translated into the kind of enterprise revenue that coding products deliver.
On the hiring front, there are signs of a counter-offensive. Andrew Milich and Jason Ginsberg are joining from Cursor, the AI coding tool company, where they jointly led product engineering. Their move suggests that xAI’s in-house frontier model and computing resources remain attractive to top talent despite the internal upheaval.
Musk also disclosed for the first time that the company’s Macrohard project, an ambitious effort to build an AI agent capable of performing any white-collar computer task, is now a joint initiative with Tesla. The Tesla side is developing a complementary agent called “Digital Optimus,” which Musk says would be directed by xAI’s language model. The project’s original leader, Toby Pohlen, left within weeks of being appointed, and reporting this week indicated Macrohard had been paused before this joint pivot was announced.
The pressure is both competitive and financial. xAI is now part of SpaceX, and with a public offering of SpaceX shares anticipated, Musk needs the cash-burning AI division to show real traction rather than ongoing turmoil.
