Elon Musk opened his first all-hands meeting with employees of Cursor, the AI coding startup SpaceX acquired for $60 billion, with a blunt admission: Grok, the flagship model from his AI venture, has fallen behind the competition.
Speaking via video link to more than 1,000 Cursor employees gathered at the company’s San Francisco headquarters and satellite offices, Musk acknowledged that SpaceX’s AI division does not hold the same dominant position that Tesla and SpaceX command in their respective industries. Five people familiar with the meeting described his remarks to The Information.
“Grok isn’t the leader in its market, and it desperately needs to catch up,” Musk said, according to the report. He added that he was “not used to losing.”
Musk singled out Anthropic as the current frontrunner in the AI race, calling it a formidable competitor. The acknowledgment carries weight given that Cursor’s own staff reportedly preferred Anthropic’s Claude model over Grok for coding tasks, according to an earlier Bloomberg report. Even xAI employees who enjoyed coding frequently turned to Claude instead of their own company’s product.
The billionaire framed the urgency in existential terms. He told employees that AI models will inevitably advance to a point where humans cannot control them, and that SpaceX must therefore be the first organization to build such technology. To support that ambition, Musk pledged that SpaceX would continue amassing more computing capacity than any other company in the AI race.
The meeting, held around August 15 when the acquisition closed, marked the formal beginning of Cursor’s integration into SpaceX’s orbit. The startup, founded in 2022 by MIT alumni, grew from a simple code editor into one of the most popular AI-assisted programming tools on the market. By June, Cursor had reached an annualized revenue of $4 billion.
Yet the company was also burning through cash. In the weeks before agreeing to the SpaceX deal, Cursor attempted to raise additional funding but was rebuffed by some investors. Despite its impressive revenue, the company’s gross margins were negative, and it projected needing several billion dollars more in the second half of the year to cover infrastructure costs.
Cursor CEO Michael Truell had warned employees that without rapidly expanding beyond code editing, the company risked being swallowed by foundation model giants like OpenAI or Anthropic. That pressure led to the April technology-sharing and compute agreement with SpaceX, which included an option to acquire the startup outright. SpaceX exercised that option in June, days after completing its IPO.
The integration has been turbulent. Cursor’s workforce has not remained independent but has instead been split and folded into existing SpaceXAI teams. The two companies’ Slack workspaces began merging last week, and Cursor employees are being encouraged to work from SpaceXAI’s Palo Alto office. Management distributed copies of “Liftoff,” the book chronicling Musk’s early days at SpaceX, as an onboarding ritual.
Compensation and management structures have shifted dramatically. In August, Cursor notified employees that the accelerated vesting policy originally promised with “no time limit” would expire in about three months. Some product and marketing executives were demoted with reduced compensation, and stock vesting was tied to new performance targets.
The upheaval has driven departures. Since April, 45 employees have left, primarily from core product and engineering teams. The list includes the head of reinforcement learning, the design lead, a senior vice president for global strategic accounts, the brand chief, and Cursor’s general counsel. Around 20 people from the Graphite team, acquired earlier this year, have also exited, including former Graphite CEO Merrill Lutsky, who left in June.
Amid the churn, Cursor has pushed forward with Origin, its ambitious code-hosting platform designed to compete directly with Microsoft-owned GitHub. The project, which Cursor executives demoed for Musk in June, launched in beta last week. The company hired engineers from GitHub and acquired code-review startup Graphite to accelerate development.
The strategic logic behind Origin is straightforward: when an AI agent edits code, it needs access to the repository, its history, documentation, and deployment tools. Owning the hosting layer gives Cursor more context and control over the entire development workflow while reducing dependence on GitHub, which markets its own competing AI coding product, GitHub Copilot.
GitHub retains significant advantages, however. Developers use the platform not just for storage but for collaboration, code review, project management, and open-source community participation. Those network effects will be difficult for a new entrant to replicate.
Cursor’s transition from high-flying startup to integrated division reflects the broader consolidation reshaping the AI industry. The company that was once valued in the tens of billions is now a piece of Musk’s sprawling AI ambitions, its employees navigating new management layers, new performance metrics, and a corporate culture built around the founder’s distinctive vision of technological urgency.
SpaceX did not immediately respond to a request for comment.