Musks $3.6tn Gamble

Can Tesla and SpaceX Become One Company?

Elon Musk is considering his most ambitious corporate deal yet: combining Tesla and SpaceX into a single group spanning electric cars, rockets, satellites, artificial intelligence, robots and social media.

Both companies have created special committees of independent directors to examine a possible merger, although Musk says no terms have been agreed and there is no guarantee that a deal will proceed. At current valuations, the combined business would be worth roughly $3.5tn to $3.6tn, placing it among the world's largest companies.

The idea fits Musk's increasingly integrated vision of artificial intelligence and physical technology. It also raises profound questions about governance, valuation, regulation and whether even the world's richest entrepreneur can manage an empire of this scale.

A New Kind of Conglomerate

The combined company would be difficult to classify. SpaceX would contribute its launch business and Starlink satellite network. Tesla would bring electric vehicles, batteries, autonomous driving technology and its Optimus humanoid robot programme.

Together, the companies would employ more than 155,000 people and generate forecast revenue of about $153bn this year. They would also require extraordinary amounts of capital. Analyst estimates suggest the combined group could report negative free cash flow of at least $54bn as Musk accelerates spending on rockets, computing infrastructure, chip manufacturing and artificial intelligence.

This is not a merger designed merely to remove duplication. It would be an attempt to create a vertically integrated technology group capable of building the hardware, software and computing capacity needed for Musk's version of the AI future.

The AI Ambition

Musk says the world is approaching what he calls the AI singularity, the point at which machine intelligence surpasses human intelligence. He argues that Tesla and SpaceX should be combined because both are increasingly involved in developing artificial intelligence and the physical systems that use it.

SpaceX expects to have about 3GW of computing power online by the end of this year and 13GW by the end of next year. Musk has suggested there is a possibility of exceeding 20GW.

At more than $50 per watt, 20GW of capacity could theoretically generate $1tn a year if every unit were rented out. That is close to the upper end of the $500bn to $1tn revenue run rate Musk has projected for the end of 2027.

The figures are enormous, although the gap between computing capacity and profitable utilisation is equally significant. Building data centres is one challenge. Filling them with paying customers at the expected prices is another.

Tesla’s Other Businesses

Tesla would add its car business, which remains the foundation of its valuation. Analysts expect the company to sell more than 500,000 Model 3 vehicles, over 1mn Model Ys and about 22,000 Cybertrucks this year.

It also has autonomous driving technology and the Optimus robot programme. Musk has predicted that Optimus could eventually make Tesla worth $25tn, a claim that illustrates both the scale of his ambition and the difficulty shareholders face when assessing the company.

Tesla is already being positioned as more than a carmaker. A merger with SpaceX would make that transformation explicit, but it could also make it harder to determine what Tesla is actually worth.

The Businesses Are Already Converging

The argument for a merger is that the two companies already work together. SpaceX has bought almost $1bn of Tesla batteries and Cybertrucks. Tesla has become a SpaceX shareholder after its investment in xAI was converted into SpaceX stock following the merger of Musk's two private companies.

The companies are also connected through several proposed projects. These include Terafab, a massive semiconductor plant in Texas that could eventually cost $119bn and produce chips for autonomous vehicles, humanoid robots and orbital data centres.

They are also working on a flying sports car based on Tesla's Roadster, using cold-gas thrusters developed by SpaceX. Musk's Grok chatbot is available in many Tesla vehicles.

Supporters of a merger say these are not isolated collaborations. They are early signs of a larger industrial system that links computing power, manufacturing, robotics and space infrastructure.

Governance Is the Hard Part

Musk's position creates the central problem. He is the chief executive and a major shareholder of both companies, making him a directly conflicted party. He says he cannot participate in the special committees' discussions, which are being handled by independent directors.

At SpaceX, Musk controls about 84 per cent of the votes through super-voting shares. At Tesla, his voting stake is about 20 per cent. A merger would give him greater influence over Tesla while bringing a public company under the control structure of a private space and defence contractor.

Tesla shareholders would need to approve the deal, and the company would reportedly require the support of a majority of all shares rather than merely a majority of those voted. That is a demanding hurdle.

Musk's history will also be examined. His earlier merger of SolarCity into Tesla was challenged by shareholders who argued that he had used Tesla to support another part of his business empire. Although the court ultimately rejected the claims, the judge criticised Musk's close relationships with Tesla's independent directors and his involvement in the negotiations.

Texas Changes the Rules

Both companies have moved their legal domiciles from Delaware to Texas. That matters because Texas corporate law is generally more deferential to board decisions and can make certain shareholder lawsuits harder to pursue.

Ann Lipton, a corporate law professor at the University of Colorado, has said that Texas law sets a higher threshold for claims that directors breached their duties. Shareholders may need to demonstrate fraud, intentional misconduct, an unauthorised corporate act or a knowing violation of law.

That does not eliminate governance risks, but it changes the legal environment in which a transaction would be challenged. The independent committees will need to demonstrate that the process is fair, properly documented and not designed simply to consolidate Musk's control.

China May Be the Biggest Obstacle

Regulatory approval is likely to be difficult in several jurisdictions, including the United States, the European Union, the UK and China. Beijing could be particularly concerned because Tesla has major operations in China while SpaceX is closely linked to the US defence and national security establishment.

Tesla generated about $21bn of revenue in China last year, roughly 22 per cent of its total. Its Shanghai factory is also the company's largest production site.

SpaceX, meanwhile, carries out US national security launches and produces Starshield military satellites. Starlink has also been treated by Chinese military researchers as a potential security threat, particularly after SpaceX supplied terminals to Ukraine following Russia's invasion.

JPMorgan analysts have suggested that Tesla might need to ringfence its Chinese operations or transfer control to a Chinese consortium. Possible structures include a spin-off, a licensing arrangement or a separate ownership model for the Shanghai business.

That would be a complicated solution. Tesla's Chinese operations are not simply an overseas sales office. They include manufacturing, technology, supply chains and a major role in the company's global production system.

The Question of Focus

Investors have long questioned how much attention Musk can give to each of his companies. He is involved in Tesla, SpaceX, xAI, X and several other ventures, as well as government-related technology projects.

One major Tesla investor has said that shareholders cannot tell where Musk is spending most of his time or money. Musk argues that he spends much of his working week in Memphis, Tennessee, overseeing the construction of new computing clusters and that SpaceX's rocket engineers can build data centres faster than competitors.

That may be true. But the larger question is not simply whether Musk can work long hours. It is whether a public company should depend so heavily on one individual's judgement across so many unrelated and capital-intensive businesses.

A Merger With No Easy Comparison

The proposed combination would be unlike a normal industrial merger. It would combine a listed carmaker with a private space and defence company, a satellite operator, an artificial intelligence platform, a social media network and a potential chip manufacturer.

The opportunity is obvious. A single company could coordinate investment in chips, data centres, robots, vehicles and orbital infrastructure. It could also give Musk greater control over the assets he sees as central to the AI economy.

The risks are equally clear. Shareholders must decide whether they are being offered fair value. Regulators must consider national security, competition and technology transfer. Tesla investors must also decide whether they want a car company transformed into the financial engine of Musk's wider empire.

Musk says the merger is a good idea, but he also says it is not certain to happen. That qualification may prove more important than the headline. For now, the proposal is less a completed transaction than a test of how far shareholders, regulators and markets are prepared to follow him.