Elon Musk’s artificial intelligence venture, xAI, has laid off at least 500 workers from its data annotation team, the company’s largest workforce, according to a Business Insider report.

The move, announced to employees by email on Friday, marks a significant restructuring of operations as the firm pivots towards more specialised roles in training its Grok chatbot.

The data annotation team has been central to xAI’s development efforts, tasked with teaching Grok to interpret and categorise raw data. However, the report notes that laid-off employees were informed their contracts would be honoured until November 30, even though access to internal systems was revoked immediately.

Shortly after the report surfaced, xAI acknowledged the job cuts in a post on X, but stressed that the company remains in expansion mode. It stated that it intends to grow its “specialist AI tutor team” tenfold, signaling a shift away from generalist support toward domain-focused expertise.

The restructuring comes amid wider challenges at the company. In July, xAI’s Chief Financial Officer, Mike Liberatore, stepped down after only a few months in the role, raising questions about management stability.

Musk launched xAI in 2023 as a direct competitor to established firms in the sector, including OpenAI, Anthropic, and Google DeepMind. He pledged the company would pursue AI systems with fewer restrictions but higher safety standards. The Grok chatbot, integrated into Musk’s social media platform X, is positioned as a rival to mainstream generative AI products.

Industry analysts suggest that the layoffs reflect both strategic repositioning and the financial pressures facing AI startups, which often involve high development costs coupled with uncertain revenue streams.