One company makes electric cars that are inherently terrestrial, ferrying millions of drivers on roads around the world. The other shoots rockets into space and has aspirations to make it to Mars. At first glance, they would seem like an odd pairing.
Yet, this week Elon Musk said that aerospace firm SpaceX and EV carmaker Tesla — two trailblazing companies he built and serves over as chief executive — were considering a tie-up, confirming speculation that what would be the biggest corporate merger ever is a real possibility.
And like much else on Wall Street, the driving force apparently is artificial intelligence, including demands for massive infrastructure spending to support its vast computing power.
Although Tesla’s best-selling Model Y and Model 3 require drivers to get behind the wheel, the company has developed an autonomous ride-hailing vehicle called a Cybercab with no human controls that has just begun pilot testing. Musk sees it and a robot called Optimus as keys to the future of Tesla, which will rely on vast cloud computing power that it and SpaceX already are developing together.
“This is a strategic no brainer for Musk and the SpaceX ecosystem to merge with Tesla,” analyst Dan Ives, a partner Yorkville Ives & Co., said in a statement.
But even if the deal makes strategic sense, there are myriad practical challenges in combining two trillion-dollar companies with vastly different operations — as well as regulatory concerns that are not just domestic, but also probably will include China and Europe. Shareholders of both companies would have to approve the deal.
SpaceX, which was founded in 2002 in El Segundo and moved its headquarters from Hawthorne to Texas in 2024, is a rocketry pioneer that has become the world’s dominant launch provider though it has limited domestic operations in a handful of states.
By contrast, Tesla, which still operates its original factory in Fremont, Calif., assembled 1.65 million cars, as well as some trucks, in the U.S., China and Germany last year, employing more than 100,000 workers.
Musk disclosed the proposed merger during a call with analysts Tuesday while discussing SpaceX’s third-quarter financial results, which surpassed Wall Street estimates for all its business lines, including rocket launches, its Starlink internet satellite business and AI, which includes renting computer power to other AI companies.
“There’s a lot to be gained from cooperating on developing superintelligence software,” Musk said.
The tech mogul stressed that it was far from a done deal, noting that each company’s board formed a special committee to consider the matter. He is not participating due to his conflicts of interest, owning shares of both companies.
“I think some people out there assume that a SpaceX and Tesla merger is a certainty, and I think that would be overstating it,” Musk said. “Do I think it would be a good idea? Yes, but at the end of the day, the shareholders have to be supportive of this.”
Shares of SpaceX closed up 3% on Wednesday to $386.47, while Tesla shares rose even more, up nearly 8% to $159.31.
The gains added $64 billion to Musk’s net worth, which ended the day at $989 billion. He was the world’s first trillionaire for a time this year, after SpaceX’s June 12 initial offering, before the stock slumped.
Trillion-dollar tie-up
Merging SpaceX, with its $2.15-trillion market cap, with Tesla, valued at $1.53 trillion, would almost certainly result in the largest ever corporate merger , exceeding Vodafone’s roughly $200-billion buyout of German conglomerate Mannesmann in 2000.
The stage for the possible marriage was set this year when SpaceX acquired Musk’s privately held xAI company in a $1.25-trillion deal that brought the AI company’s assets to the rocket maker.
Ever the showman, Musk also seemed to presage the merger last week with the unveiling of Tesla’s new superfast Roadster, which has yet to be released but was specially outfitted with SpaceX booster rockets to perform flips in midair on a livestream.
Dan Levy, a Barclays analyst, said the rationale for the merger clearly lies in what he calls an “AI vertical integration play” in which Tesla’s vehicles, robotaxis and robots would benefit from SpaceX’s now formidable AI infrastructure, including its Grok large language model AI platform.
Tesla’s vehicles also could use SpaceX’s Starlink satellite network for connectivity and its robotaxis would benefit from xAI’s fleet management software while SpaceX’s data centers could potentially benefit from Tesla’s solar products business, among some synergies. Also noteworthy is that the two companies are jointly developing a $17-billion AI chip plant in Texas.
“While we suspect there would be some financial synergies, the true value would be in vertical integration,” Levy said in an Oct. 14 note.
Eric Talley, a corporate law, governance and finance expert at Columbia Law School, said other practical considerations may be at play, including the challenges Musk faces running both companies separately while developing joint strategic initiatives.
“Mr. Musk has been trying simultaneously to run two fairly significant, actually enormous companies that were moving closer and closer to one another,” he said. “There has always been this kind of apprehension … how many of the new exciting things were going to be done inside SpaceX versus how many of Mr. Musk’s new exciting things were going to be done inside Tesla.”
Another impetus for the merger plans might be the sales struggles Tesla has been experiencing and the vast technological challenges from robotaxi competitors such as Waymo.
Tesla’s electric vehicle business is slowing, weighed down by competition from China, the loss of federal EV tax credits last year and declining support for green vehicles under the Trump administration — even as the recent surge in gas prices is renewing interest for the vehicles among consumers.
Tesla’s vehicle deliveries increased slightly from the second quarter, with just over 486,000 new vehicles delivered in the third quarter. Still, that’s down from 497,000 in the third quarter a year earlier, with EVs making up only around 6% of new vehicle sales in the U.S.
“Elon needs something that is forward indicating for Tesla, and selling more electric cars isn’t it,” said Karl Brauer, an auto analyst at iSeeCars.com. “He was obviously trying to tie the two companies together with the quote-unquote flying car last week.”
The merger would give Tesla more breathing room as it spends billions on developing its robotaxis and autonomous driving technology, while positioning the company as a technological leader working on cutting-edge technologies that would shape the future.
“I think self-driving tech is the most important thing for Tesla to solve in its current form,” Brauer said. “If it’s tied to SpaceX … they can share expenses and they become one big company.”
Shareholder, regulatory hurdles
Although it’s unclear what form a merger would take, analysts see SpaceX, with its larger market capitalization, acquiring Tesla at some sort of premium to satisfy shareholders in the automaker, whose share of the combined mega company would be diluted.
Musk might also personally favor that scenario because he owns 48% of SpaceX’s stock, but has 82% of the voting power through a dual-class structure. If SpaceX acquired Tesla, the class structure would remain in place, with Musk owning 37% of the shares of the combined company while retaining 56% of the voting power, according to Levy’s calculations.
“It would result in a much higher voting share of the combined company for Musk,” he wrote.
However, even if Tesla’s shareholders were to approve the merger, there are potentially regulatory hurdles abroad.
In Europe, where governments are worried about the threat posed by Russia after its invasion of Ukraine, officials may view an even larger SpaceX with trepidation. That concern has been heightened after reports that the military grade version of Starlink, called Starshield, that Ukraine relies upon for its operations, was temporarily slowed downlast week, Talley said.
Musk has denied any involvement, but the Wall Street Journal has reported he might have ordered the slowdown after political tension between the White House and Ukranian President Volodymyr Zelensky.
“Europe is simultaneously dealing with their own security concerns about an increasingly aggressive Russia and whether a larger version of SpaceX and Tesla could be even more threatening,” Talley said.
Similarly, Chinese authorities might be concerned that a full integration of Tesla into SpaceX might lead to the EVs cars conducting surveillance, he said. There were media reports this year that Tesla was weighing a spinoff of its China business due to the potential merger, but Musk called one report “fake news.”
Given the record of the Trump administration, Talley doesn’t believe that U.S. regulators would block the merger, but state attorneys general could file a lawsuit to oppose it, just like they did this year over Paramount’s $111-billion merger with Warner Bros., though a deal was later reached and the litigation was dropped.
Whatever the outcome of the potential merger, Musk probably will remain focused on his ambitions to send humans to Mars on SpaceX’s massive Starship rocket under development— even as he has consistently missed self-imposed target dates.
“I think he’s been perhaps a little bit more conservative in his outlook, and realizes this is probably going to take a lot longer than even he thought,” said Marco Caceres, an aerospace analyst with Teal Group.
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