I don't think the LLM had anything to do with this decision at all. It looks like the Grok tool starts a session by deterministically kicking off a full upload of the user's current repository (and maybe their directory if not version tracked? Not clear if this user had previously run "git init" in their home directory) to Grok's servers.
One possible "innocent" explanation could be that xAI then run vector embedding on every file to help later provide the right context. I don't think thats a worthwhile tradeoff here, especially since other popular coding agents get by just using grep/ripgrep run locally.