Musk backs a potential merger linking SpaceX’s rockets and AI business with Tesla’s vehicles, robotics and manufacturing.
The proposed deal could bring AI computing, chipmaking and advanced manufacturing under one corporate structure.
Shareholder approval, conflicts of interest and regulatory scrutiny remain major hurdles.
Elon Musk has backed a potential merger between SpaceX and Tesla, as the two companies establish independent committees to examine a deal that could bring their artificial intelligence (AI), robotics, semiconductor manufacturing, satellite communications and vehicle businesses under one corporate structure. The discussions could result in SpaceX acquiring Tesla, Reuters reported, citing a person familiar with the matter, but no transaction terms have been agreed.
“I think it would be a good idea, but it’s really up to the special committees of both companies,” Musk said during SpaceX’s third-quarter earnings call on Tuesday, October 20. He added that he could not participate in the committees’ deliberations because he was a “conflicted party”.
The proposal comes as SpaceX expands its AI computing business and Tesla invests in autonomous driving, humanoid robots and advanced manufacturing. Both companies are also involved in Terafab, a planned semiconductor manufacturing project.
The potential merger raises a central question: would combining the businesses make it easier to coordinate technology and investment, or would it simply bring together two companies with substantial spending requirements and different commercial priorities? Reuters estimates that the combined business could be worth about $3.5 trillion, although this is not an agreed transaction valuation.
Why Musk Wants To Combine SpaceX And Tesla
Musk has argued that the companies could benefit from closer cooperation as their technological ambitions increasingly overlap.
“I do think there’s a lot of merit to combining the companies,” he said, pointing to the development of AI and the opportunities for cooperation in “superintelligence software, chip design, the Terafab obviously, robotics, mass-to-orbit with the Starmind constellation, connectivity”.
Tesla manufactures electric vehicles and develops batteries, autonomous driving systems and humanoid robots. SpaceX operates rockets and Starlink, its satellite internet service, and is expanding into AI computing infrastructure.
However, a full merger is not the only way to achieve these benefits. The companies already collaborate on Terafab, and further partnerships could allow them to share technology while retaining separate ownership, financial reporting and management structures.
The case for a merger therefore depends on whether a single corporate structure would deliver more value than continued collaboration.
AI Chips, Robotics And Orbital Computing
Terafab is one of the clearest examples of the companies’ overlapping interests. The planned semiconductor project is intended to manufacture advanced chips for applications including AI computing, autonomous vehicles and humanoid robots.
Musk said Terafab aims to produce its first functional test chip around May or June 2027, with volume production targeted for the third quarter of 2028. He described the schedule as “very aggressive”, adding that production in either the third or fourth quarter of 2028 remained possible. “I put big error bars on this because we don’t know if we will actually achieve this or not,” he said.
Reuters reported that the proposed facility would combine advanced chip manufacturing, packaging and testing. The project remains under development, and its production targets are ambitions rather than confirmed milestones.
SpaceX is also developing its plans for Starmind, a proposed orbital computing constellation. The concept is to place computing infrastructure in space, potentially supporting future AI applications. Its technical feasibility, costs and commercial returns remain uncertain.
The Financial Case For Investors
SpaceX’s latest financial results help explain why its AI business could be central to the merger discussions.
According to Reuters, revenue rose 161% year on year to $14.58 billion in the third quarter, while net income reached $4.4 billion, compared with a loss of $1.1 billion a year earlier. Super Intelligence revenue surged to $7.56 billion from $813 million a year earlier, driven by new cloud-services agreements, the acquisition of Cursor and increased adoption of Grok, according to SpaceX’s financial filing.
The Associated Press reported that AI had become SpaceX’s largest revenue segment, while Starlink remained its biggest profit generator. The distinction matters because rapid revenue growth does not necessarily mean that every part of the business is equally profitable.
SpaceX’s investment requirements are also substantial. Its third-quarter capital expenditure nearly tripled to $19.6 billion, of which $16.44 billion was allocated to its Super Intelligence segment, according to its financial filing. The Super Intelligence segment reported $431 million in operating income, including $1.2 billion in share-based compensation associated with the Cursor acquisition, according to SpaceX’s filing. This distinction matters because the reported operating result reflects a substantial acquisition-related compensation charge.
A combined company could potentially coordinate investment across AI, chips, batteries and manufacturing, but it would also have to manage competing demands for capital.
Tesla shareholders could gain exposure to SpaceX’s launch operations, Starlink and AI computing. SpaceX investors could gain exposure to Tesla’s vehicle, energy and robotics businesses. The actual benefits would depend on the transaction structure, the valuations assigned to the companies and the terms offered to shareholders.
Combining two valuable businesses does not automatically create additional value, particularly if the deal requires substantial investment or gives shareholders less favourable terms than they could obtain by retaining their existing holdings.
Shareholder Approval And The Risks Ahead
Governance is a major obstacle because Musk leads both companies and has different ownership and voting positions in each.
Reuters reported that Musk owns nearly a fifth of Tesla and just under half of SpaceX. TechCrunch reported that he holds more than 50% of SpaceX’s voting power. These figures measure different things: ownership represents an economic stake, while voting power determines influence over corporate decisions. The distinction matters when assessing the governance of a potential merger.
Musk described approval at Tesla as a particularly difficult hurdle. The company would need support from 50% of all its shares, not merely half of the votes cast, he said.
He also cautioned investors against assuming a deal was inevitable: “Some people out there assume that a SpaceX and Tesla merger is a certainty, and I think that would be overstating it.”
Their independence is important because the proposed deal could affect the companies differently, particularly in relation to valuation, control and the distribution of benefits.
Regulatory scrutiny is another potential consideration. SpaceX has major US government contracts, while Tesla has substantial manufacturing operations in China. A merger could raise questions about sensitive technology, information-sharing and cross-border business interests, although there is no basis to suggest that regulators have already formally objected to the proposal.
The commercial argument for a merger is that it could give Musk greater freedom to coordinate AI computing, chip development, robotics and manufacturing across the two businesses. But SpaceX and Tesla could pursue some of these opportunities through partnerships without combining their financial and governance risks.
The independent committees must decide whether a deal’s terms justify putting it to shareholders. Until then, the central question remains whether a merger would create more value than the companies could achieve by working together while remaining separate.
