On Tuesday, during SpaceX’s earnings call, Elon Musk confirmed that both companies have formed special committees to study the merger. The idea of merging SpaceX and Tesla has been around for a while, and after the merger between Musk’s space firm and xAI, it’s a move the tycoon is particularly interested in. According to the New York Times, the combined company would be worth about $3.5 trillion at current market prices, and would be the largest corporate operation in economic term history. Nothing has been agreed upon at this point, but the topic is definitely on the table.
Why does it matter? Kasturi wants to bring its electric cars, rockets, satellites and AI under one roof. According to current market data, SpaceX is valued at about $2 trillion and Tesla at $1.5 trillion. The operation would also solve a problem that Musk has had for years, since he controls 80% of the voting rights in key decisions at SpaceX, while he owns about 20% of Tesla, shared by the NYT.
Business logic. Musk’s argument is that both companies increasingly need each other. For that, Tesla builds “physical AI” (autonomous taxis and humanoid robots), while SpaceX provides supporting infrastructure, including data centers and satellite connections.
According to the Financial Times, a chip factory in Texas, which could be worth up to $119 billion, is already under construction by the company. And Tesla also sells Megapack batteries to SpaceX. Last year they sold $430 million worth of batteries to SpaceX data centers, according to the WSJ.
Musk confirmed that the argument is simple, because according to the tycoon, “there is a lot of merit in combining companies,” he announced in a call with investors, as reported by the NYT.
Statistics. SpaceX’s latest results show how far it has come beyond rockets. We recently reviewed in this house what the company has achieved in its AI department. Last quarter’s financial results saw a 161% increase in revenue, reaching $14.6 billion, and net profit reaching $4.4 billion.
The engine of that growth was AI, as its “superintelligence” division generated about $7.6 billion, more than half of total revenue, and rents data center capacity to rivals such as Anthropic and Google. Tesla had a weak quarter. The NYT reported that profit fell to $787 million from $1.4 billion a year earlier, as spending on self-driving cars and robots increased.
Qdifficult The big question Wall Street is asking is not whether the deal will go through, as acknowledged by Reuters, but no one agrees on what Tesla shareholders should receive. RBC and JPMorgan expect investors to demand a premium of between 20% and 35%. Others expect little or no bonus because the shareholder bases of the two companies overlap greatly.
Ross Gerber, whose firm owns shares in both companies, argues that a bonus would dilute SpaceX shareholders as they increase costs. And SpaceX is already spending heavily, with capital spending reaching $19.6 billion last quarter and Musk forecasting between $35 billion and $40 billion next.
VOtation Musk has claimed that a deal with Tesla requires a majority of all outstanding shares, not just issued and voted, as shared by the NYT. This means that every shareholder who does not effectively vote counts against it. Reuters notes that analysts see this segment as a risk, so they will be watching at Tesla’s annual meeting on December 3.
Musk’s own control complicates the issue, since the merger is estimated to increase his voting power to around 57-58%, according to the media. And then there’s the issue of conflicts of interest, since the NYT reported that, in addition to Musk, both boards include former allies and friends. Reuters remembers the move in 2016 when Tesla bought SolarCity, a company founded by Musk’s cousins. A Delaware court there gave the green light to the deal, but indicated that an independent committee should have been formed.
AndRegulators and Politics. As The Independent points out, SpaceX works for NASA, the US military and intelligence agencies, while Tesla has a large factory in Shanghai. Having a cocktail that mixes Washington and Beijing could raise significant political and security problems.
what happens now. Both committees, consulted by lawyers and bankers, must agree on terms and present them to their respective boards of directors, according to the WSJ. We’ll have to wait to see if the parties agree and what Tesla has prepared for the Dec. 3 annual meeting.
Cover image Tesla
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