Elon Musk is now a trillionaire. Is his next big move a merger between Tesla and SpaceX into a $3 trillion behemoth?
Following SpaceX’s splashy record-setting public offering last month, that’s the big question on many investors’ minds. But Musk’s call with shareholders on Wednesday provided few answers.
When asked about a possible tie-up, he didn’t commit either way.
“There’s going to be more and more overlap (between the two companies),” he said. “But obviously… we can’t talk about combining companies and that kind of thing on an earnings call. It’s got to be done with the appropriate process.”
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Musk did, however, mention possible advantages of combining his two massive companies, such as using SpaceX’s Starlink satellite internet service in Tesla’s robotaxis, or cooperating on artificial intelligence efforts. SpaceX and Telsa already formed a joint venture in March, a factory in Austin called Terafab to fabricate microchips.
The combined value of SpaceX and Tesla would be comparable to Microsoft, making it one of the largest companies in the world and thus easier to raise additional capital. Streamlining both AI units could improve efficiency, giving it a leg up in the AI race. The megamerger would also give Musk unprecedented control of Tesla.
“We see the possibility of a SpaceX-Tesla combination as strategically coherent on paper, allowing CEO Musk to unify vision, mission, and engineering leadership across both platforms,” JPMorgan analyst Rajat Gupta said in a note to clients earlier this month.
The two companies do share many other commonalities beyond Musk.
For one, investors calculate the high valuations of both based on their artificial intelligence efforts, not their core businesses selling electric vehicles or lifting payloads and astronauts into outer space.
Some Tesla and SpaceX bulls on Wall Street think a deal is likely within the next year.
“I think there’s over 80% chance that Tesla and SpaceX get together in 2027,” tech analyst Dan Ives said. “It’s the logical move from a data engineering perspective and Musk ownership. It makes too much sense for it not to happen.”
Waning interest in Tesla sales
Tesla reported somewhat disappointing earnings after the bell Wednesday despite a good quarter for its car sales. Net income was down from a year ago, falling short of forecasts, after the company spent big on AI and other research projects.
But EV sales have almost become an afterthought for many investors.
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Tesla shareholders on Wednesday expected to hear progress on the company’s ambitious goals for self-driving “robotaxis” and humanoid robots, as well as plans for the Terafab facility. But many wanted to hear about SpaceX.
Dozens of questions submitted by individual investors for Wednesday’s conference call asked about a possible merger between Musk’s two major companies. But none of those questions were chosen by Tesla executives.
A merger would give Musk the type of control over Tesla he’s wanted for years – one where outside shareholders can’t question his decisions. The way SpaceX stock is structured, Musk has more than 80% of the voting shares of SpaceX. Compare that to only about 20% at Tesla.
History of mergers
Musk has a history of merging his companies.
Shortly before SpaceX’s IPO, the company purchased Musk’s AI company, xAI. Last year, xAI had purchased X, the social media platform formally known as Twitter. In 2016, Tesla purchased SolarCity, the solar panel and battery company of which Musk was also chair.
For shareholders who believe in Musk, a merger between SpaceX and Tesla is “more attractive as an overall investment,” said Ross Gerber, CEO of investment firm Gerber Kawasaki.
“Because I think they need each other, and it makes it a simple decision, as an investor,” said Gerber, an early investor in Tesla turned staunch critic. “You don’t have to pick one, to decide which will do better, if you just want in on Elon.”
But there are challenges to such a merger. JPMorgan’s Gupta said the deal would face considerable regulatory challenges, particularly in China where Tesla has a large factory and gets a significant portion of its sales and profits. SpaceX’s ties to the US government would also be an issue there, he said.
But Musk himself is a controversial figure, which has affected Tesla’s business in the past. Given how much shareholder value is pegged directly to him, any merger poses risk.
“Each company has a trillion dollars of value that’s tied to Elon’s magic. So, if you combine them now, you have $2 trillion of value that’s tied to Elon’s magic,” Gerber said. “Maybe that premium diminishes if they’re combined.”
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