Musk triggers full reset at xAI as founders flee

Musk hits the reset button on xAI as co-founders flee.

Building an AI frontier lab is hard enough, but trying to rebuild the entire foundation while marching toward a massive public listing is a whole different level of chaos.

On Thursday, Elon Musk posted on X that xAI was not built right the first time and is now being rebuilt from the foundations up. The announcement lands alongside a near-total wipeout of the company’s original leadership: co-founders Zihang Dai and Guodong Zhang just walked out the door, leaving only two of the 11 original co-founders, Manuel Kroiss and Ross Nordeen, still standing with Musk.

Falling behind on code

The immediate panic centers around programming capability.

Zhang led Grok Code and reported directly to Musk, who reportedly blamed him for Grok’s coding shortfalls before his departure. Musk has openly admitted Grok is currently behind rivals like Anthropic’s Claude Code and OpenAI’s Codex, which are vacuuming up enterprise revenue. At an all-hands meeting on Wednesday, Musk rallied the team around how to catch up, predicting parity by the middle of this year.

The talent overhaul is intense. Musk recently poached Cursor leaders Andrew Milich and Jason Ginsberg, whose arrival hints that direct access to frontier models and compute is still a major hiring magnet. Desperate to plug engineering holes, Musk even noted on X that he and colleague Baris Akis are combing through previously rejected job applications to reach out to overlooked candidates.

Meanwhile, internal pressure is boiling. A month ago, 11 senior engineers left following an earlier restructuring. According to the Financial Times, executives from SpaceX and Tesla have been parachuted into xAI to audit employees and show underperformers the door.

Enter Digital Optimus

Beyond coding, Musk is shuffling his broader automation strategy.

xAI's ambitious Macrohard project, meant to build an agent capable of performing white-collar computer tasks, hit a snag after its lead Toby Pohlen left within weeks of taking the role. Musk now reveals Macrohard is being developed in tandem with Tesla, pairing xAI’s language models with a Tesla-built digital agent called Digital Optimus.

With LinkedIn putting xAI at roughly 5,000 employees, the company is wedged between Anthropic’s 4,700 and OpenAI’s 7,500. Yet having absorbed $20 billion in funding backed by Nvidia, and with SpaceX reportedly heading toward a historic IPO, xAI cannot afford to stay behind in the lucrative developer tooling market.

Why it matters

For developers and enterprise users, now is the time to sit tight. Grok Code has visibly lagged behind Claude Code, and a full engineering rebuild means performance and tool integration could see friction before they see real gains. Catching up by mid-year is possible, but evaluating Grok for production workflows is probably best reserved for after the dust settles.

Across the industry, this confirms that coding assistance is no longer a side feature; it is the primary economic engine of LLM labs. OpenAI, Anthropic, and Perplexity are racing to turn code generation into autonomous system operators. If xAI fails to nail coding, its broader ambition of building computer-use agents simply collapses.

We think Musk's willingness to admit failure and raid top application players like Cursor is ruthlessly pragmatic. However, using SpaceX and Tesla brass to purge research teams while bleeding nearly all founding technical leaders looks extremely risky. Breakthrough research requires sustained focus, and running a cutting-edge deep learning lab like a high-turnover turnaround project may do more harm to institutional knowledge than any new hire can fix.