Inside XAI: Elon Musk has a big year for Grok and IPOs

Engineers at xAI’s Palo Alto headquarters cheered.

It was February 2nd, and they had just received a memo from Elon Musk informing them that their AI startup was being acquired by his rocket company SpaceX. Memes circulated in the Slack channels of the team training the company’s Grok chatbot, with some people changing their profile pictures to look like astronauts.

That excitement was quickly overshadowed by increased pressure within the startup as it raced to catch up with rivals like OpenAI and Anthropic while preparing for an anticipated IPO.

Over the past six months, Musk has become more involved in day-to-day operations. He ran a large, always-active group chat, directed product changes, redeployed engineers, downsized key teams, and launched a centralized “war room” to accelerate development. Several current and former employees said the level of involvement changed the way the company functioned. Leadership roles are shrinking, projects are moving rapidly, and teams are being forced into what has been described as a constant “fire drill.”

Musk said change is necessary as the company scales, and that a lean team structure will be the secret to success. Regarding xAI’s restructuring after the SpaceX acquisition, he posted on X:

“As companies grow, especially as they grow as quickly as xAI, their structures need to evolve just like any other living organism.”

lean musk machine

Musk’s memo regarding the SpaceX acquisition talked about building a “sentient sun” and data centers in space. Separately, the company reassured employees that there will be little change in day-to-day operations as it prepares for an initial public offering that could value the company at $1.5 trillion.

But within a week, the atmosphere in the office changed. Two of the company’s co-founders, Jimmy Barr and Tony Wu, announced they would step down as Musk reorganized the company and reduced his responsibilities. Dimitri Zabelin, senior AI analyst at PitchBook, said the executive departure increases risk at a “sensitive stage” for the company ahead of its IPO.

One employee said co-founder Barr’s departure was “incredibly disappointing,” noting that Barr had studied under the “godfather of AI” Jeffrey Hinton and was one of the company’s most respected researchers.

The next day, more than a dozen employees posted on Musk’s social media sites claiming they too had left the company. Some left several weeks ago. A few left of their own free will. Four people familiar with the matter told Business Insider that other companies have also been affected by the reorganization after the SpaceX merger, with Mr. Musk cutting some members of the team behind Grok Imagine, a chatbot image and video generator, and the MacroHard team, which was developed last fall to help automate white-collar jobs.

Employees say structural changes, coupled with an increasingly tense work culture since Musk ended his involvement in President Donald Trump’s Office of Government Efficiency and began focusing more on AI startups, have significantly increased the pace and pressure within the company.

Musk is often seen in offices. Although Musk is heavily involved in the company’s day-to-day operations, he does not use the company’s Slack workspace, according to multiple people familiar with the matter. Instead, we communicate frequently through X, including a direct message group of over 300 engineers. In many cases, researchers will halt ongoing studies to address concerns raised by Musk.

In the chat, Musk shared screenshots of conversations with other tech executives and pointed out criticisms of Grok’s performance that he wanted addressed, the people said. Late last year, Musk told Stuff in a conversation with a friend that he was perplexed by Grok Imagine’s performance. As a result, some workers on the project were called to duty, two people said.

Musk has expressed dissatisfaction internally with the pace of Grok’s development. XAI released Grok 4.2 this week. Separately, the releases of at least two other products have been delayed by several weeks, according to people familiar with the timelines.

In one instance last year, a model’s release was delayed by several days after Mr. Musk became dissatisfied with the chatbot’s answers to detailed questions about the video game “Baldur’s Gate,” according to people familiar with the matter. High-level engineers have been poached from other projects to improve pre-launch response.

Musk has long been known for his intensity throughout his company. He said he slept on the floor of Tesla’s factory during the Tesla Model 3’s “production hell” in 2017. The company is now the world’s most valuable automaker. Currently, xAI is receiving similar treatment. Several workers told Business Insider that 12- and even 16-hour workdays are common. They said their managers told them to respond to Slack messages within 30 minutes, regardless of the time of day.

“The company is so small that everything is fire drills,” said one former employee.

Employees say there are multiple “war rooms” operating in conference rooms at the company’s Palo Alto headquarters at any given time. When researchers are in a “war room,” teams temporarily move into a shared space to work together on a specific problem (sometimes for months). At least five war rooms were operating simultaneously by the end of 2025, three people said. One of those sessions was dedicated to teaching Grok how to play League of Legends, one of Musk’s favorite video games.

Change priorities around anime and safety

Grok/xAI

Mr. Musk made it clear internally last year that xAI would prioritize improving Ani, its hypersexual, anime-inspired AI companion, according to people familiar with the matter. He characterized Ani, a virtual companion capable of sexual role-play, as a way to differentiate xAI from other AI companies.

Some employees told Business Insider they’re concerned about the company’s focus on products. This character is now displayed in a prominent place at our headquarters. According to a video shared on social media, at a company holiday party, Ani and a paid actor dressed as another character hosted a Robot Fight Club-style event.

Several employees said they joined the company hoping to work on systems that push the boundaries of science, but were disappointed that they couldn’t devote more resources to Ani.

Grok’s social media behavior has also caused tension within the company. Musk characterizes xAI and its chatbots as an “anti-wake” counterpart to ChatGPT. Public backlash against chatbots, including Grok’s series of anti-Semitic rants and incidents of digitally undressing people on social media without their consent, has put a strain on employees who have expressed concerns about how their workplaces are viewed in the AI ​​field.

Until last year, the company didn’t have a team of researchers dedicated to tackling safety issues related to large-scale language models. The company hired its first full-time safety researcher in February of last year, around the same time that the human data team that trains the chatbots began reporting problems reviewing large numbers of user-generated requests for child sexual abuse material. One person familiar with the team said it was known internally that the majority of Grok’s use was for adult role-play, and that use cases were discussed in several meetings with researchers.

The safety team grew to about six employees by the time three left in December, just before X users began reporting instances where the chatbot created non-consensual sexual images of people, including minors.

xAI’s safety team did not have the authority to formally block the product’s launch and was primarily focused on adjusting the model’s output after training, rather than conducting extensive pre-launch risk reviews, according to people familiar with the team.

Musk told X last week that xAI’s “everyone’s job is safe.”

“This is not a sham department with no authority to allay the concerns of outsiders,” he said.

XAI still has several safety employees and was recruiting additional safety staff in January, according to a post seen by Business Insider.

Some former workers said the backlash and the pace of work prompted them to leave. Last summer, xAI shortened its vesting period from the industry standard of one year to six months, making it easier for employees to leave without losing the majority of their equity.

Employee retention challenges are not unique to xAI. OpenAI and Anthropic have faced a wave of departures in recent months. Across the industry, AI companies are fiercely competing for a limited pool of top researchers, and some have begun to express concerns about the shrinking space for exploratory research as companies increasingly focus on product over research in the race to build models at scale, a dynamic that is particularly problematic for xAI, which is younger and smaller than its main competitors.

Still, some analysts say the race is far from over. Andrew Rocco, equity strategist at Zacks Investment Research, compared the current state of AI to the early days of the internet.

“I don’t think Grok is that far behind. And it’s still early in this race,” Rocco told Business Insider.

Mr. Musk has publicly expressed confidence. Speaking to staff at an all-hands meeting last week, he touched on xAI’s transition period, saying, “Some people are a good fit for the early stages of a company, and some people are not so good for the later stages.”

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