Tesla and SpaceX examine merger as Elon Musk backs deal

What happened

Tesla and SpaceX have begun examining a merger that would unite electric vehicles, rockets, satellite communications and artificial intelligence in a business spanning much of Elon Musk’s technology empire. Independent directors at each company are considering the proposal following requests from shareholders.

Musk backed the idea on Tuesday during a discussion with financial analysts about SpaceX’s quarterly results. The chief executive of both businesses said their work on computing chips, AI and software offered reasons to combine them, while stressing that a transaction was not certain.

The companies’ current stock market valuations put the scale of the proposal at about $3.5tn. Tesla accounts for roughly $1.5tn (£1.1tn) and SpaceX for $2tn (£1.5tn). A merger would be the largest in corporate history, although those valuations are not agreed transaction terms.

Musk is outside the special committees assessing the proposal because his leadership of both companies creates a conflict of interest. The committees have yet to settle terms, leaving the businesses at an exploratory stage rather than working towards an agreed deal.

Investors responded positively to the prospect. SpaceX shares gained 8% in trading after the market closed, while Tesla shares also advanced. The announcement accompanied SpaceX’s second earnings report since becoming a publicly traded company, placing the merger discussion alongside a fresh examination of its finances.

The background

The potential combination follows a year in which Musk has brought more of his businesses together. SpaceX acquired artificial intelligence company xAI and social media platform X, formerly Twitter, before its stock market debut earlier this year. Its valuation then moved ahead of Tesla’s.

Co-operation between the two remaining businesses is already extending into chip production. Their recently launched Terafab venture is a joint manufacturing effort, giving them an existing project in a field Musk identified as a reason for closer integration. A full merger would take that collaboration beyond an individual venture.

Another connection appeared last week with the unveiling of the Tesla Roadster, an electric car using SpaceX rocket thrusters. The vehicle demonstrated a way for technology developed by the aerospace business to enter a consumer product sold by the carmaker.

Tesla itself is changing its priorities. Earlier this year, it said it would concentrate on the Model Y and Model 3, its strongest-selling vehicles, rather than give the same attention to less popular models. It has also begun using a California manufacturing plant to make Optimus humanoid robots.

That shift is taking place against stronger competition in electric cars. Chinese manufacturer BYD overtook Tesla as the world’s biggest electric vehicle maker in January. The proposed merger therefore comes as Tesla develops businesses beyond cars while defending its position in its established market.

SpaceX’s activities have also broadened beyond launching rockets and operating the Starlink satellite internet network. It is expanding the computing capacity it supplies to other technology companies, including Anthropic and Google. Such services provide processing resources that customers can use without building all the infrastructure themselves.

That computing operation is now SpaceX’s most profitable business line and brought in $7.5bn in the latest quarter. Starlink generated revenue of $5.2bn. Despite the strength of those operations, SpaceX as a whole remains loss-making, with losses of $1.1bn so far this year.

Behind the commercial expansion sits Musk’s ambition to establish a city on Mars capable of sustaining itself. Bringing robotics, AI, communications and space transport under one company could support that goal, although the vision has attracted both supporters and sceptics.

What people are saying

David Nicholson, chief technology adviser at market research business The Futurum Group, expects a merger eventually to happen. He views the Roadster demonstration as a sign of the companies’ growing connection and regards the opportunity to combine their technology as more important than the vehicle business alone.

Dan Sheehan, an investment analyst at Telos Wealth Advisors, also expects Musk to secure shareholder support over the next few years. His assessment rests on the complementary nature of the businesses: Tesla’s autonomous driving and robotics work could sit alongside SpaceX’s AI capabilities and satellite network.

For Tesla investors, however, Sheehan sees a substantial change in what they would own. Their stake would probably represent a lower proportion of a larger, more complicated enterprise. He also points to the difficulty of valuing Tesla within a transaction for which there is little direct precedent.

Tu Le, founder of advisory business Sino Auto Insights, sees a possible commercial benefit from introducing SpaceX technology into future Tesla products. The Roadster presentation offers one example of the approach, which he believes could help the carmaker attract customers.

The outlook for motorists is less dramatic in the immediate term. Analysts expect little near-term disruption for Tesla drivers even if a deal proceeds. Sheehan nevertheless identifies a longer-term strategic question: how much attention car development would receive within an organisation increasingly focused on infrastructure for AI.

What happens next

The independent committees must first determine whether they can agree a transaction to put forward. Musk’s support does not remove that step. His position on both sides of the proposal makes the directors’ assessment particularly important: enthusiasm from a shared chief executive is different from agreement between the companies.

Shareholders would then have the decisive role. Musk said approval from at least half of Tesla’s shareholders would be required, presenting a substantial hurdle even for a leader with a large personal stake. He cannot take part in the shareholder discussions over the proposal.

There is a recent example of Tesla investors supporting a major request from Musk. Last year, they approved a compensation package valued at about $1tn. That decision demonstrates his influence with shareholders, but the merger would ask them to consider a different issue: the future ownership and structure of their company.

The committees must also weigh the effect on control. A combination would give Musk greater voting power than he currently holds at Tesla. Sheehan argues that a single business would make it easier for Musk to direct his AI strategy while concentrating more of his wealth in one shareholding.

Political scrutiny could become another consideration. Nicholson expects attention to focus on Musk himself and believes regulatory pressure could increase if Democrats gain more seats in the US midterm elections next month. That is a potential complication rather than a settled obstacle to the proposal.

The next scheduled financial milestone is Tesla’s quarterly results on Wednesday. Those figures will follow SpaceX’s update as investors assess the performance of the carmaker alongside the much broader business they could eventually be asked to own.

Why this matters

For UK investors holding either company’s shares, the proposal concerns exposure as well as size. A combined holding would link the fortunes of vehicle manufacturing with space launches, internet satellites, social media and AI computing, rather than allow investors to assess Tesla and SpaceX separately.

For UK customers, it would bring two distinct consumer services—Tesla vehicles and Starlink internet—under the same corporate ownership. The practical significance lies in how that larger business would allocate investment between transport, communications and computing while pursuing Musk’s ambitions in space.