Musk Taps Into Private Credit to Fund AI Ambitions

Summary

WSJ What’s News: "Musk Taps Into Private Credit to Fund AI Ambitions" – July 22, 2025

Hosted by The Wall Street Journal

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Introduction

In this episode of WSJ What’s News, host Alex Osola delves into a myriad of pressing topics shaping today's economic and political landscape. From Elon Musk's strategic maneuvers in the artificial intelligence (AI) sector to the evolving dynamics of private credit firms and their legal requisites, the episode offers a comprehensive overview of significant developments. Additionally, discussions touch upon the impact of tariffs on the automotive industry, the ongoing Jeffrey Epstein investigation stalling the House of Representatives, and the burgeoning implications of Buy Now, Pay Later (BNPL) schemes on consumer credit.

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Elon Musk's AI Ambitions and Private Credit Funding

Key Highlights:

• AI Startup Xai: Elon Musk's AI venture, Xai, is aggressively seeking up to $12 billion to accelerate its expansion plans. This capital is earmarked for procuring advanced Nvidia chips essential for establishing a colossal data center designed to train and power the AI chatbot, Grok.

• Valor Equity Partners Involvement: Under the stewardship of Antonio Gracias, Valor Equity Partners, closely linked to Musk, is negotiating with lenders to secure the necessary funds. This move underscores Musk's urgency to bolster Xai against formidable competitors like Google, Microsoft, and Meta in the fiercely contested AI arena.

• Financial Strategies: Just weeks prior, Xai successfully raised $10 billion through equity and debt offerings. To sustain its financial trajectory, SpaceX has injected $2 billion into Xai, reallocating resources within Musk’s conglomerate of companies. For instance, the $5 billion debt raised in June was collateralized using Xai's intellectual property assets behind Grok.

Notable Quotes:

• "Grok hasn't gained nearly as much traction as OpenAI's ChatGPT." – Alex Osola [00:57]
• "Musk needs all the financial firepower he can get to stay competitive in a wild and costly AI battle." – Alex Osola [00:57]

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Impact of Tariffs on the Automotive Industry

Key Highlights:

• General Motors' Financial Strain: General Motors (GM) reported a substantial decline, attributing a $1.1 billion hit to new tariffs on imported cars and parts. Consequently, GM's net income plummeted by 35% in the second quarter.

• Industry-Wide Implications: As the largest automaker in the U.S., GM's struggles reflect broader challenges within the automotive sector. The imposition of tariffs in early April has ushered in increased costs, with potential ramifications anticipated to extend into the third quarter.

• Consumer Pricing Dynamics: Despite the cost pressures, GM has maintained price stability, expressing a commitment to avoiding price hikes. However, analysts predict that sustained tariff-related costs will eventually permeate the market, potentially affecting consumer prices down the line.

Notable Quotes:

• "Most analysts see the auto industry slowing down in the second half of the year, which is adding to the pressure." – Chris Otz [02:58]
• "A lot of the automakers have actually avoided raising prices... in the long run, the situation can't hold." – Chris Otz [03:37]

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Jeffrey Epstein Investigation Halts House Proceedings

Key Highlights:

• House of Representatives at a Standstill: The resurgence of disputes surrounding the Jeffrey Epstein investigation has immobilized the House of Representatives. Republican leadership has deferred legislative actions until September, responding to calls from GOP members for more comprehensive disclosures related to Epstein.

• Justice Department's Stance: Despite pressure, the Justice Department has resisted releasing additional FBI probe documents. House Speaker Mike Johnson emphasized the need for "maximum transparency" but also advocated for granting the Trump administration the requisite space to manage the investigation.

• Potential Interviews: The Department of Justice is contemplating interviewing Ghislaine Maxwell, Epstein's longtime associate currently serving a 20-year sentence for sex trafficking. Deputy Attorney General Todd Blanch has initiated discussions with Maxwell's legal representation regarding her potential cooperation with federal prosecutors.

Notable Quotes:

• "He has now ordered his DOJ to do what it is we've all needed DOJ to do for years now, and that is to get everything released." – Donald Trump [05:32]
• "It's sort of a witch hunt." – Donald Trump [06:34]

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Buy Now, Pay Later (BNPL) and Its Impact on Consumer Credit

Key Highlights:

• Emerging Credit Implications: BNPL services, offered by platforms like Affirm and Klarna, are gaining popularity for financing everyday purchases. The integration of BNPL data into credit scoring models by FICO marks a significant shift, potentially altering consumers' credit profiles.

• FICO's New Model: The latest FICO model incorporates BNPL usage, a first for credit scoring agencies. Initial assessments suggest that average BNPL users might experience a credit score boost. However, banks express concerns that the visibility of BNPL debt could negatively influence credit approvals.

• Banks' Response: Financial institutions are increasingly scrutinizing BNPL data, viewing it as "phantom debt" that complicates their risk assessments. Additionally, the rise of BNPL threatens traditional credit card revenue streams due to its zero-interest offerings. In response, some banks are developing similar installment-based payment options to retain market share.

Notable Quotes:

• "For the $5 billion in debt Xai raised in June, the company pledged its most prized asset, the intellectual property behind Grok, as part of the collateral." – Alex Osola [00:57]
• "It's really a positive for them [law firms]." – Chris Otz [12:27]

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Private Credit Firms Expanding In-House Legal Expertise

Key Highlights:

• Increased Complexity in Deal-Making: The surge in private credit activities has led firms to seek in-house legal specialists to navigate the intricate landscape of deal structuring and regulatory compliance.

• Talent Acquisition Strategies: Private credit firms are actively recruiting seasoned lawyers from elite law firms, offering competitive compensation packages that include significant salaries and carried interest—profit-sharing arrangements that align legal expertise with investment outcomes.

• Impact on Law Firms: While law firms may view the departure of top legal talent as a loss, the ongoing collaboration with in-house teams ensures that business flows back through their channels, mitigating potential negative impacts.

Notable Quotes:

• "A lot of law firms really aren't moving mountains to keep their people from going in house." – Chris Otz [11:56]
• "It's really because they have the technical expertise to really come in and get started and get the ball rolling." – Chris Otz [11:07]

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Conclusion

Today's episode of WSJ What’s News provides listeners with an in-depth analysis of significant developments in the realms of technology, finance, and politics. From Elon Musk's strategic funding moves in the AI sector to the complexities facing private credit firms and their legal infrastructures, the discussions illuminate the evolving challenges and opportunities across industries. Additionally, the episode sheds light on the broader economic implications of trade policies and emerging financial products, offering listeners a nuanced understanding of the forces shaping today's market dynamics.

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Produced by: Pierre Bienname
Supervising Producer: Michael Kosmides
Host: Alex Osola

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For more insights and updates, tune in to WSJ What’s News daily.

Transcript

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[Alex Osola]

Elon Musk is turning to new funding sources to keep pace in the artificial intelligence race. Plus, private credit firms are seeking in house lawyers as their deals get more complex.

[Chris Otz]

A few years ago, private credit mainly referred to middle market direct lending, and now it encompasses everything from asset based lending all the way to collateralized loan obligations and BDCs.

[Alex Osola]

And discord over the Jeffrey Epstein investigation brings the House of Representatives to a standstill. It's Tuesday, July 22nd. I'm Alex Osola for the Wall Street Journal. This is the PM edition of what's News, the top headlines and business stories that move the world today. In an exclusive, we're reporting that Xai Elon Musk's artificial intelligence startup is looking to secure up to $12 billion to fuel its ambitious expansion plans. That's according to people familiar with the situation. The money would be used to buy a massive supply of advanced Nvidia chips that would be leased to Xai for a new jumbo sized data center meant to help train and power the AI chatbot. Grok. Valor Equity Partners, an investment firm whose founder, Antonio Gracias, has close ties to Musk, is in talks with lenders to raise the capital. Musk needs all the financial firepower he can get to stay competitive in a wild and costly AI battle with well funded rivals like Google, Microsoft and Meta. Grok hasn't gained nearly as much traction as OpenAI's ChatGPT. The funding push comes just weeks after the company raised $10 billion through sales of stock and debt. With Xai's balance sheet already stretched, Musk is getting creative to keep the money flowing. SpaceX recently invested $2 billion into XAI, effectively moving cash from the coffers of one Musk company to fund another. People familiar with the situation said that for the $5 billion in debt Xai raised in June, the company pledged its most prized asset, the intellectual property behind Grok, as part of the collateral. General Motors reported that new tariffs on imported cars and auto parts took a $1.1 billion bite out of its bottom line, and net income shrank 35% in the second quarter. Chris Otz covers autos for the Journal and joins me now. Chris, how are President Trump's tariffs weighing on the industry?

[Chris Otz]

This is really the first look. GM is the biggest automaker in the US Both by volume and market share, and Trump's tariffs came on in early April. So this quarterly results that are starting to flow in really give us the first kind of full picture of what this is going to mean for the industry. They said the impact could be a little bit greater even in the third quarter. Most analysts see the auto industry slowing down in the second half of the year, which is adding to the pressure.

[Alex Osola]

Are consumers yet feeling the price increases potentially from some of these tariffs?

[Chris Otz]

There have been some price increases here and there, but for the large part, automakers have actually avoided raising prices. In GM's case, they've been quite explicit that they want to keep things consistent. And for them, the prospect of Trump reaching a deal with Mexico, Canada and or Korea could really go a long way to getting them out of the tariff problems. So there really hasn't been much discernible impact yet. Most analysts think that in the long run, the situation can't hold. You just can't add these structural costs and not expect them to ripple through the market.

[Alex Osola]

That was WSJ reporter Chris Otz. Thank you so much, Chris.

[Chris Otz]

Thank you.

[Alex Osola]

The US Reached trade pacts with the Philippines and Indonesia today, while Treasury Secretary Scott Besant said Federal Reserve Chair Jerome Powell should finish out his term if he so decides. Major US stock indexes ended the day mixed. The S&P 500 rose 0.1%, giving it another record high. The Dow rose 0.4% and the Nasdaq retreated 0.4% from yesterday's record weighed down by chip makers such as Nvidia. Furor over disclosures from the Jeffrey Epstein investigation brought the House of Representatives to a standstill today. Republican leadership has cut short this week's session and put off any action until September as some GOP members demanded votes on more releases related to the disgraced financier and sex offender. Washington has been gripped by the fallout from the Justice Department's decision earlier this month to refuse to release more documents from the Federal Bureau of Investigations probe of Epstein. At a news conference, House Speaker Mike Johnson called for, quote, maximum transparency around the investigation, but said he wanted to give the Trump administration space to handle the issue.

[Donald Trump]

He has now ordered his DOJ to do what it is we've all needed DOJ to do for years now, and that is to get everything released. So they're in the process of that. There's no purpose for Congress to push an administration to do something that they're already doing.

[Alex Osola]

Earlier, a senior Justice Department official said he would seek to interview Epstein's longtime associate Ghislaine Maxwell, who's serving a 20 year prison sentence for sex trafficking. Deputy Attorney General Todd Blanch said that he had contacted Maxwell's lawyer to see if she would be willing to speak with federal prosecutors. A lawyer for Maxwell confirmed in a post on X that they are in discussions with the government and thank President Donald Trump for, quote, his commitment to uncovering the truth in this case. Asked by reporters at a meeting with Filipino President Ferdinand Marcos Jr. President Trump said he wasn't aware of Justice Department plans to interview Maxwell.

[Donald Trump]

Yeah, I don't know about it, but I think it's something that would be sounds appropriate to do. Yeah.

[Alex Osola]

Do you have any concern that your.

[Donald Trump]

Deputy attorney general, as your former attorney, would be conducting the interview given?

No, I have no concern. He's very, he's a very talented person. He's very smart. I didn't know that they were going to do it. I don't really follow that too much. It's sort of a witch hunt.

[Alex Osola]

Coming up, choosing to Buy now, pay later on an expensive purchase, your bank might punish you for it. More after the break.

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[Alex Osola]

The option to Buy now, pay later with companies like Affirm or Klarna is becoming an increasingly popular way for consumers to pay for everyday goods like groceries. But banks are wary of them. And now they're saying that binging on Buy Now, Pay later might actually hurt your chances of getting approved for a mortgage or credit card. WSJ personal economics reporter Imani Moiz joins me now with more. Imani, how can Buy now, pay later affect your credit?

[Imani Moiz]

It really depends. Right now, it seems like it can go both ways. So FICO, the largest credit scoring agency in the U.S. announced last month that they are rolling out a new model that can actually incorporate Buy Now Pay later data into your credit score, which is the first time you're going to see these types of loans impact your credit score directly. And really the first time FICO's had to update a model specifically to accommodate a new kind of loan. That's how fast this thing is growing. But according to that new model, the average Buy Now Pay later user will actually see their score increase. But what banks are saying is that as this data gets reported, they're going to scrutinize it a little bit more and it actually might hurt your chances of getting approved.

[Alex Osola]

So why are banks worried about Buy Now Pay Later?

[Imani Moiz]

Mostly because it's growing so quickly. And historically, Buy Now Pay later hasn't been reported to credit bureaus, which means that banks really do not have an independent way of seeing how much debt potential borrowers are taking on. Some banks have called it phantom debt, which means that it's harder for them to measure risk and figure out how much credit whether it's a credit card, mortgage, auto loan, anything else they should extend to a customer because they can't see how much other debt they might already have. It's also a threat to their business model because a lot of Buy Now Pay later plans are zero interest. So as Buy Now Pay later becomes more popular, people are less likely to use credit cards, which is a big profit driver for the banks as well as.

[Alex Osola]

So banks that are worried about this, what are they doing?

[Imani Moiz]

Some lenders are being more proactive than others. I spoke with one credit union that's actually proactively reaching out to customers when they notice heavy Buy Now Pay later use in their transaction history because in their view, they think their products are safer for consumers because it does come with a higher personal touch in terms of counseling. And they're afraid that some of their customers are going to get in over their head because it's so easy to apply for a Buy Now Pay Later. And some big banks have moved to block their customers from repaying Buy Now Pay later loans with their credit card. But at the same time, some of these banks are launching their own products that look very much like Buy Now Pay Later. For example, on Chase credit cards, they have something called Pay Over Time, which lets you separate transactions or individual purchases into installment payments, which is effectively what Buy Now Pay later is.

[Alex Osola]

That was WSJ reporter Imani Moiz. Thanks, Imani.

[Imani Moiz]

Thank you.

[Alex Osola]

We've talked before on the show about the rise of private credit loans provided by non bank lenders. Now, to facilitate their work, private credit firms are increasingly building up their own staple of in House legal talent. For more, I'm joined now by WSJ pro reporter Isaac Taylor. Isaac, why are some of these private credit firms doing this?

[Chris Otz]

It's really because of a rise in deal making complexity and also regulatory compliance complexity as well. And this demand has really been driven by fundraising needs, firm growth, and a surge in deal volume within the private credit sector. And as private credit has grown, the breadth of what is being done in house has expanded so much that a lot of these firms are realizing that maybe they didn't have the in house technical skills or knowledge and they're really looking to expand that talent pool now.

[Alex Osola]

And where are they looking to find this expertise?

[Chris Otz]

A lot of these private credit firms are really poaching people from law firms. And these are your elite blue chip law firms. And it's really because they have the technical expertise to really come in and get started and get the ball rolling. From day one, a first year JD coming straight out of school makes an annual salary of about $225,000. And when you add a bonus, which is us way about 20,000, that comes out to a total compensation of about 245,000. And so to poach someone, obviously these private credit firms need to expand past that. And one of the ways that they're doing that is offering carried interest, which is a share of investment profits.

[Alex Osola]

Sounds like a pretty good deal for some of these private credit firms. But what does this mean for law firms?

[Chris Otz]

A lot of law firms really aren't moving mountains to keep their people from going in house. And it really has to do with when these people go in house. A lot of times they'll sit that firm's business back to the law firm that they just came from. And so law firms don't really view it as a net negative if one of their top people leaves. Of course, they probably didn't want that. But if that person in turn just sends a deal or some type of structure back to the law firm for them to work on it, it's really a positive for them.

[Alex Osola]

That was WSJ pro reporter Isaac Taylor. Thank you, Isaac.

[Chris Otz]

Thank you.

[Alex Osola]

And that's what's news for this Tuesday afternoon. Today's show is produced by Pierre Bienname with supervising producer Michael Kosmides. I'm Alex Osola for the Wall Street Journal. We'll be back with a new show tomorrow morning. Thanks for listening.