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Elon Musk’s artificial intelligence company xAI has laid off 500 of its 1,500 employees. The cuts primarily affect staff handling routine tasks, as the company shifts focus to building a specialized AI tutor team aimed at enhancing service sophistication. However, some analysts argue the move is less about improving quality and more about a strategy to reduce costs.

xAI Cuts Over 500 Staff in a Single Round

On the 13th (local time), Business Insider reported that xAI had laid off members of its general AI tutor team and revoked their system access. The team—once the company’s largest—handled tasks such as raw data labeling and contextualization. Before the cuts, around 1,500 employees were active in xAI’s main Slack channel; afterward, that number fell to just over 1,000, meaning at least 500 people were dismissed at once.

xAI explained the move as part of an immediate “strategic pivot,” accelerating the expansion of specialized AI tutors while scaling back its reliance on general tutors. Instead of staff handling routine tasks like video/audio annotation and document preparation, the company will now prioritize experts in STEM, coding, finance, law, medicine, and media to further advance its Grok AI model.

Following the layoffs, xAI posted on X (formerly Twitter) that it planned to expand its specialist tutor team tenfold, and the company’s official website now lists job openings for experts across multiple fields.

xAI’s Chronic Funding Struggles

Some observers see xAI’s latest restructuring as primarily a cost-cutting move. Unlike rivals, the company operates its own data centers without partnerships with major cloud providers such as Google, Microsoft, or Amazon. That means it must shoulder the enormous costs of building servers and training AI models on its own. According to The Wall Street Journal, xAI’s cash outlays this year are estimated at around $13 billion, while revenue is virtually nonexistent.

With expenses ballooning and no clear revenue streams, xAI has scrambled to secure outside funding. In June, investment bank Morgan Stanley disclosed that the company raised $5 billion through secured bonds and loans, alongside an additional $5 billion in strategic equity investments. The following month, reports surfaced that CEO Elon Musk was seeking to raise another $12 billion to finance AI chip purchases.

Musk has also tapped into his wider business empire to support xAI. SpaceX, his space exploration company, injected $2 billion into xAI, while the $5 billion bond issuance in June was backed by core assets, including the intellectual property of Grok, xAI’s flagship AI model.

Ads Coming to Grok

Elon Musk is reportedly considering inserting advertising into Grok as part of xAI’s push for profitability. According to a Business Insider report last month, Musk told advertisers in an online discussion, “We can surface products or services as ads that help answer user questions.”

Launched in November 2023 and initially offered only to X (formerly Twitter) users, Grok has since expanded with its own website and the release of Model 4, entering the broader AI market. But aside from subscription fees, it still lacks a solid revenue model.

Musk’s plan envisions a personalized ad system, where advertisers upload content that Grok then matches to relevant users. Revenue would help cover the steep costs of running Grok, particularly GPU expenses. xAI operates a Tennessee data center equipped with 200,000 NVIDIA GPUs, and after purchasing more land in March, is expanding capacity further — requiring fresh funds.

“Until now, the focus has been on making Grok the smartest and most accurate AI in the world,” Musk said. “Now it’s time to figure out how to pay for it.”