Inside Musk’s First Address to Cursor: Grok Is Falling Behind

Earlier this month, on the day SpaceX announced it had completed its $60 billion acquisition of Cursor, Elon Musk called into an all-hands video meeting with the coding startup’s staff.

Musk told them that SpaceX’s AI unit had fallen behind competitors and that he wasn’t used to losing. Unlike Tesla or SpaceX, which have dominant positions in their industries, SpaceXAI’s Grok isn’t the leader in its market, and it desperately needs to catch up, he said, according to five people with knowledge of the meeting.

On the call, Musk said it is inevitable that AI models will become so advanced they’ll be impossible for humans to control. For that reason, he told employees, who gathered at Cursor’s San Francisco headquarters as well as in other smaller offices, that they needed to help SpaceX’s AI division build the technology before other companies did, the people said.

Musk praised Anthropic for leading the AI race and said the company was a strong competitor, one person said. Musk also said SpaceX, for its part, would continue to stockpile the most compute capacity of any company in the AI race, two people said.

It was the first time Musk had addressed Cursor’s more than 1,000-person workforce. But SpaceX’s influence has been rippling throughout the startup ever since the companies inked a tech-sharing and compute deal in April that gave SpaceX the option to buy Cursor.

Cursor leadership told some staff that SpaceX leadership had approved the company’s hiring budget and encouraged the startup to ramp up hiring of sales staff, one person with knowledge of the hires said. Cursor’s headcount more than quadrupled over the past year, largely driven by heavy hiring in sales and marketing, areas where the company has brought in dozens of people each month since April.

Cursor executives also demonstrated the company’s GitHub competitor, Origin, for Musk in June, two people said. Cursor released Origin in beta last week. It’s an ambitious project the company started developing before agreeing to the partnership arrangement.

The unusual partnership structure, meanwhile, created months of uncertainty around the acquisition and what it would mean for Cursor. Leaders had told Cursor staff soon after the announcement that Cursor’s brand was a powerful asset for SpaceX and that not much would change day to day as a result of the deal. But it became clear as the acquisition neared that the reality would be different.

Both companies worked on an AI agents product, which SpaceX released under the Grok brand before the deal closed, and a joint Grok model. Now Cursor’s staff are being folded into existing SpaceXAI teams.

And though SpaceXAI intends Cursor to buttress its existing staff, which has dwindled after cuts and exits throughout the year, Cursor has seen its own wave of departures. Recent senior exits included a reinforcement learning lead, design lead, senior vice president of global strategic accounts, brand lead, and Cursor’s general counsel.

Overall, 45 people, mainly from product and engineering teams, have left Cursor since April, according to LinkedIn records and current and former employees, even as the total headcount has grown. That includes roughly 20 people from the team who joined when Cursor acquired code review startup Graphite early this year. Graphite CEO Merrill Lutsky left Cursor in June.

With the acquisition complete, Cursor CEO Truell is taking on a leadership role at SpaceXAI reporting directly to Musk, while Cursor co-founder Aman Sanger is working in the pretraining organization, and the other remaining co-founder, Sualeh Asif, is serving as the director of machine learning at SpaceXAI. Andrew Milich, who left Cursor for SpaceXAI earlier this year, is continuing to lead the product team.

Spokespeople for SpaceXAI and Cursor did not respond to multiple requests for comment.

Rapid Growth, Mounting Competition

Cursor’s current position lays bare the jockeying for talent, compute and big customers across the AI industry—which has driven a fast-changing mix of alliances and strategies. Cursor, which reportedly hit $4 billion in annualized revenue in June, will boost SpaceX’s AI revenue even as it spends heavily on AI infrastructure.

Founded in 2022 by a group of friends who met while attending the Massachusetts Institute of Technology, Cursor started with a code-editing tool that quickly grew into one of the most popular products in the market for AI-assisted software engineering.

In its early days, the company was a tight-knit and scrappy group that moved quickly. Cursor had a relatively flat organizational structure, with fluid job titles and a culture where employees would pitch in across teams to get products out the door, three people said.

Cursor moved so quickly that engineers at times pushed updates to its products without conducting traditional code reviews, two people said. The practice meant it was sometimes unclear who was responsible for fixing bugs and security issues the AI-generated work introduced, the people said.

As it grew, Cursor began adding more middle managers and formalizing responsibilities, three people said, while introducing more checks and oversight of work. In February, Cursor launched an AI system that could autonomously review updates and determine when problems needed escalation to human engineers before the company could ship code, two people said. And this summer, Cursor started drafting its first formal safety policy, two people said; it previously operated with no formal safety framework.

Though the partnership aimed to boost SpaceX’s own AI products after SpaceXAI struggled to catch up in coding, it came at a time when Cursor too was looking to branch out amid mounting competition, including from the model makers that power its products.

Even before the deal, Cursor CEO Michael Truell had told staff the company needed to expand beyond coding to continue growing, two people said. He had warned that OpenAI or Anthropic could swallow up Cursor’s business if it did not broaden its product offerings, the people said.

At the same time, Cursor was doubling down on new coding-related products by developing a direct competitor to GitHub—it hired engineers from the Microsoft-owned platform for storing, reviewing and collaborating on code, and earlier this year it completed its Graphite acquisition, first announced in December.

Graphite had already built tools for reviewing and managing software code, which Cursor quickly incorporated into its own products, two people said. Several Graphite employees moved to working on Origin, which would combine a new GitHub-like code repository with Graphite’s existing code-review technology, they said.

Weeks before agreeing to the SpaceX partnership, Cursor set out to raise fresh funding, and some investors passed. At the time, the company was generating negative gross margins, and it still expected to have to raise billions more later in the year for compute spending.

The SpaceX partnership it instead opted for gave Cursor the compute it needed, and the companies started collaborating on work including a new Grok model and agent.

Work continued as well on the Origin products, though they faced some resistance from some of Cursor’s own staff, who balked at migrating their work from GitHub, two people said. The product team focused on finding more ways to distinguish the product from GitHub, in addition to improving its reliability and integration with Graphite, one person said.

Liftoff

When SpaceX announced it would move ahead with the acquisition in June, days after the rocket company’s initial public offering, Cursor employees celebrated the news with rocket-ship emojis on Slack, two people said. Cursor leadership encouraged staff to promote their work on social media, including asking them to share their favorite memories of the startup, the people said.

Around that time, Cursor told employees it had implemented a new policy that would allow nine months of accelerated vesting for employees who got cut. At the time, Cursor staff were told there was no time limit to the arrangement. The company meanwhile made some key product hires, including Jenny Wen from Anthropic as a designer in June.

In August, shortly before the deal closed, Cursor told staff the accelerated vesting would expire in around three months, two people said. Around that time, the company demoted some senior leaders across product and marketing, and it changed the compensation of some to lower pay and tied stock vesting to new performance milestones, two people said.

As of last Monday, Cursor teams had started the integration process, including merging Slack teams and moving Cursor staff to teams across SpaceXAI, three people said. Cursor has begun encouraging employees to visit SpaceXAI’s offices in Palo Alto, Calif., and Truell has even promised to buy them the book “Liftoff: Elon Musk and the Desperate Early Days That Launched SpaceX” to learn about the company’s history, the people said.