Special committees at SpaceX and Tesla are weighing a possible merger, Elon Musk said on 21 October, which would create a company worth about $3.5 trillion at current market values. SpaceX shares rose 8% and Tesla shares rose 3.5% in early afternoon trading on Wednesday, the Associated Press reported. Nvidia, the largest company on the market, is valued at $5.2 trillion. Musk cautioned that “many hurdles remain.” The question is whether a combination would create value for shareholders or mainly for Musk.
The case for the merger rests on the companies’ shared dependence on artificial intelligence. Musk says there is “lots to be gained from cooperating on developing super intelligence,” and the two companies already work together on AI chip production at the Terafab factory in Texas. Humanoid robots at Tesla need AI to work, and a SpaceX satellite connection could help Tesla’s self-driving vehicles operate without drivers. Tesla could also benefit if SpaceX’s Starmind project succeeds in placing large data centres in orbit. The deal would likely surpass Vodafone AirTouch’s purchase of Germany’s Mannesmann, worth $354 billion in today’s dollars, and Musk owns 19% of Tesla and 11% of SpaceX, with a majority of SpaceX’s voting control; he says he cannot interact with the special committees and is not privy to their discussions.
The case against rests on price and politics. According to FactSet, SpaceX trades at 100 times expected earnings over the next year and Tesla at 170 times, against 19 times for the S&P 500, and the AP notes that many analysts work for banks that hope to win advisory and financing business from Musk. A change-in-control provision in Tesla’s compensation plan would treat many performance targets as met in certain mergers, including delivering 20 million vehicles and deploying a million robots, which would benefit Musk personally; Forbes puts his net worth at $1.004 trillion. The AP says Democrats could derail a deal if they do well in next month’s midterms, and House Democrats have called for investigations into SpaceX contracts. Tesla faces several safety investigations into its driver-assistance software. SpaceX’s June IPO filing warned that a change in congressional control could have a “material and adverse impact on our growth and competitive position.”
Musk said the deal would be sensible partly because both companies’ futures depend heavily on AI. The merger matters beyond the two companies because of Musk’s political role. He is the largest donor to Republican midterm candidates, having given $276 million since July, and lawmakers from both parties called for investigations after SpaceX’s Starshield service speeds for Ukraine were slowed following a Trump deal for Russian diesel. SpaceX also holds large federal contracts and expects more as NASA plans to return astronauts to the Moon, so regulators and Congress have reasons to examine any combination closely. House Democrats have also called for investigations into Musk’s work with the Department of Government Efficiency, which adds to the political risk.
A $3.5 trillion company would be among the largest ever assembled, and the AI case is easier to state than to prove. The valuations, the investigations and the 3 November election will decide whether it proceeds.