Musk Backs Tesla–SpaceX Merger as Committees Begin Talks

Written By James Taylor
Tesla–SpaceX Merger Faces Shareholder Hurdle Despite Musk’s Support

Tesla–SpaceX Merger Moves Into Committee Talks, With No Deal Agreed

Rockets, Cars and the AI Connection

Independent directors are examining a combination, but investors still lack the terms needed to judge who would benefit.

Elon Musk has backed a possible merger between Tesla and SpaceX, saying both companies have formed special committees to discuss the idea. Speaking during SpaceX’s third-quarter earnings call on 20 October, he said the committees consisted of independent directors and had been established at shareholders’ request.

No transaction terms have been agreed. Musk’s support gives the proposal a powerful advocate, but investors still have no agreed price, ownership split or timetable against which to assess it.

Why Musk Is Outside the Committee Talks

Musk said his position as a conflicted party prevented him from participating in the committees’ discussions. His interests span both businesses, while each company’s shareholders need to consider what a transaction would mean for their own investment.

That distinction becomes practical when negotiations reach price. A generous valuation for one company can mean a less attractive exchange for the other company’s owners. Agreement that the businesses could work well together does not settle how the benefits should be divided.

The committees therefore matter beyond the announcement itself. Investors will eventually need to understand the assumptions behind any recommendation: what each business is worth, which benefits require common ownership and what risks the combination would create.

For now, their formation establishes a process. It does not reveal the outcome of their assessment.

The AI Business Behind the Merger Argument

Musk’s stated case reaches beyond putting an electric-car manufacturer alongside a rocket company. He identified overlapping work in artificial intelligence, chip design, robotics, connectivity and the Terafab chip project.

SpaceX’s latest financial release shows how far its business has expanded. For the quarter ending 30 September, the company recorded total revenue of approximately 14.6 billion dollars, up 161 per cent from a year earlier.

Its Super Intelligence division generated 7.56 billion dollars, compared with about 5.25 billion from Connectivity and 1.77 billion from Space. AI was therefore the largest of its three reported revenue segments, accounting for slightly more than half the total.

The spending is substantial too. SpaceX reported approximately 19.6 billion dollars of quarterly capital expenditure, including 16.4 billion in Super Intelligence. Capital expenditure funds assets and infrastructure; it is different from the operating expenses used to calculate operating profit.

These figures make the commercial question sharper. Any combination would bring together businesses making consequential decisions about where to invest, how quickly to expand and which projects deserve funding first.

The growing cost of AI computing infrastructure helps explain why access to hardware and finance has become central to the industry. Yet spending capacity is only useful if the resulting assets earn an adequate return.

Shared Engineering Does Not Set the Price

There is a plausible industrial argument for bringing complementary capabilities under one roof. In principle, common ownership could simplify decisions about shared investment or technology development. Whether those advantages would justify this particular transaction remains unproven.

The committees would need to distinguish benefits that require a merger from benefits available through ordinary commercial agreements. Two companies can collaborate without exchanging their shareholders’ entire interests in the businesses.

Chip development offers a useful example of the distinction. Better coordination could help engineers, but it would not by itself establish the value of the resulting products or the price investors should pay for them. The wider push towards AI-assisted chip design also shows why technical ambition needs to be assessed against demonstrated results.

A larger company could spread some costs across more activities. It could also make investment choices harder to scrutinise, particularly if the financial performance of one operation obscures the demands of another. Those are questions for a proposed business plan, rather than benefits or failures that can be assumed in advance.

What Shareholders Would Need to Know

Musk said a Tesla deal would require support representing 50 per cent of all outstanding shares, rather than simply half the votes cast. He described this as a high hurdle.

The denominator matters. If approval is measured against all outstanding shares, a large majority among participating voters may still fall short when many shareholders do not vote. Enthusiasm among the most vocal investors cannot establish whether the necessary support exists.

Before reaching that stage, shareholders would need a concrete offer. In a share-based transaction, the exchange ratio determines how many shares investors receive in return for their existing holdings. A favourable view of the combined business does not automatically make every possible ratio attractive.

Voting rights would matter alongside economic ownership. Investors would also need clarity on the combined board, management responsibilities and the commitments attached to major investment programmes. None of those questions can be answered by adding the companies’ market values together.

Tesla’s Results Are the Next Scheduled Test

Tesla has scheduled its own third-quarter financial results for after the US market closes on 21 October. Its previously released operating figures show 486,532 vehicle deliveries and 13.7 gigawatt-hours of energy-storage deployments during the quarter.

Those figures describe activity, not profitability. Tesla explicitly cautions that deliveries and storage deployments should not be treated as indicators of the full quarterly financial result, which also depends on prices, costs and other factors.

The results will give investors a fuller picture of Tesla’s business as the merger discussions develop. The decisive information for any transaction, however, will be an offer that explains what shareholders would surrender, what they would receive and why the exchange is worth making.

Sources

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