Musk says SpaceX-Tesla merger 'a good idea'

Elon Musk stated on Tuesday that a merger between his two public companies, SpaceX and Tesla, would be a good idea, marking the first official confirmation that formal discussions are underway. The world’s richest man revealed that both corporate boards have established special committees to evaluate a potential tie-up. This move represents the most significant step toward creating a multitrillion-dollar conglomerate focused on artificial intelligence. Such a combination would constitute the largest merger in history, uniting the seventh and eleventh most valuable companies globally. The resulting entity would surpass Amazon in market value, trailing only Microsoft, Alphabet, Apple, and Nvidia. Musk addressed investors during a conference call following SpaceX’s release of third-quarter earnings. He emphasized that as the chief executive of both firms, he is considered a conflicted party and therefore excluded from the deliberations of the special committees. These bodies consist solely of independent directors. Musk noted that the committees were formed at the request of shareholders, who hold the ultimate authority to approve any transaction. While he expressed personal optimism about the strategic benefits, he cautioned that the committees have not yet agreed on terms and that a deal is not guaranteed. The financial rationale for the merger centers on the rapid growth of SpaceX’s artificial intelligence sector. The company reported that its revenue more than doubled in the third quarter, rising 161 percent to $14.6 billion from $5.6 billion in the same period last year. This performance exceeded analyst estimates of $12.9 billion. For the first time since going public, SpaceX swung into profitability, posting a net income of $4.4 billion compared to a net loss of $1.1 billion a year earlier. Analysts had projected a profit of approximately $1.57 billion, making the actual result a significant beat. A primary driver of this surge was the expansion of SpaceX’s cloud computing and data center operations. Revenue from AI services increased ninefold to $7.6 billion, up from $813 million annually and tripling from the previous quarter. Much of this income stems from leasing excess computing capacity to rival model developers, including Anthropic, Google, and Reflection AI, rather than from SpaceX’s own proprietary models. Musk described being relentlessly hounded by hyperscalers and smaller firms seeking access to his hardware. He stated that the company could rent out its compute resources multiple times over if it accepted all incoming offers. Despite the revenue jump, capital expenditures remain massive. Spending on infrastructure rose to $19.6 billion in the third quarter, up from $18.4 billion in the prior quarter and above consensus estimates. The bulk of this investment targeted data centers and chips. Looking ahead, SpaceX Chief Financial Officer Bret Johnsen indicated that capital expenditure is expected to climb further, reaching between $35 billion and $40 billion in the fourth quarter. This trajectory significantly exceeds analyst forecasts. As of the end of September, SpaceX had 1.7 gigawatts of installed computing capacity. The two companies have deepened operational ties in recent years, laying the groundwork for a potential integration. In March, Musk announced Terafab, a joint venture for a large semiconductor manufacturing plant in Texas. This facility aims to produce chips for autonomous vehicles, humanoid robots, and orbital AI data centers. Musk outlined a timeline for Terafab, stating that the first test chip is expected around May or June of next year, with volume production targeted for the third quarter of 2028. The total cost of these projects could eventually reach $119 billion. Additional synergies include the development of the Roadster, a flying sports car unveiled last week that utilizes cold-gas thrusters developed by SpaceX. Furthermore, Musk’s AI model, Grok, is provided free of charge in many Tesla vehicles. Musk argued that cooperation in superintelligence software, chip design, robotics, and mass-to-orbit connectivity via the Starlink constellation offers substantial mutual benefit. He referenced the concept of the "superintelligence singularity" as a key motivator for unifying the entities. Market reaction to the announcement was immediate. SpaceX shares climbed eight percent in extended trading, while Tesla shares rose between 1.5 and 1.8 percent. Speculation regarding a merger had intensified in recent weeks. Last week, Barclays suggested that a deal could be announced before Tesla’s annual shareholder meeting in December. According to one person familiar with the matter, talks began in recent weeks and could result in SpaceX acquiring Tesla. That individual noted that Tesla has engaged an investment bank to advise on the process. Ownership structures suggest that a merger would consolidate power under Musk. He currently holds nearly a fifth of Tesla and just under half of SpaceX. Analysts indicate that a combined entity would likely fall under his control. However, procedural hurdles remain. Any merger requires approval from shareholders, with at least 50 percent of Tesla shareholders needing to vote in favor for the deal to proceed. Investor sentiment appears positive despite the uncertainties. Gene Munster, a managing director at Loup Ventures, commented on the likelihood of a deal, raising his probability estimate from 90 percent to 95 percent within the next two years. He suggested the transaction might occur within the next year, citing internal momentum. Meanwhile, SpaceX’s traditional core business, the Starlink internet service, continues to grow, though it faces challenges with declining average revenue per user. The company’s longer-term ambitions still depend on bringing Starship rockets into regular service, but its current financial profile increasingly resembles that of a major cloud provider rather than a pure aerospace firm. Musk has previously integrated other assets into SpaceX, including the social media platform X and his AI laboratory, xAI. This pattern suggests a broader strategy of consolidating his technological empire. The upcoming decisions by the special committees will determine whether this consolidation extends to the automotive sector. Until then, both companies continue operating independently, with SpaceX focusing on expanding its AI infrastructure and Tesla continuing its work on electric vehicles and autonomy. The outcome of these discussions remains pending, with no final agreement on transaction terms currently in place.