Merging SpaceX, Tesla makes more sense for Musk than its investors

American billionaire Elon Musk’s plan to merge his spaceflight and satellite-Internet company SpaceX with his electric vehicles maker Tesla will concentrate an enormous amount of technological financial power in his hands, with a combined market capitalisation of $3.5 trillion. Importantly, it will create a new integrated AI-industrial conglomerate.

Both companies currently have committees of independent directors to figure it out, and no particular terms are in play. SpaceX has also disclosed that Mr. Musk, the controlling shareholder, will have to approve the merger, although he has otherwise recused himself from the committees’ negotiations.

SpaceX has already absorbed xAI, which operates the Grok AI model, in February while Tesla is developing, among other products, specialised AI chips. The companies have also jointly announced an ambitious semiconductor manufacturing project called Terafab. So, a merger will bring multiple verticals under the same corporate roof.

Eliminate important checks on capital allocation

But, while the merger will ease these operations’ ability to move money and personnel between them, it could also eliminate important checks on how the combined behemoth allocates capital — a non-trivial prospect considering Mr. Musk’s latent fondness for testing the rules.

For example, CNBC reported in mid-2024 that Mr. Musk had diverted 12,000 Nvidia H100 processors originally meant for Tesla towards X.com and xAI, reportedly delaying Tesla’s receipt of more than $500 million worth of computing equipment by months. Mr. Musk later said Tesla lacked the infrastructure to use those processors when Nvidia had delivered them. In January this year, Tesla committed $2 billion to xAI, and when SpaceX acquired xAI, Tesla turned its right to acquire xAI shares into a right to acquire SpaceX shares. Neither of these transactions was illegal per se but they hint simultaneously at the movement of resources and their (reduced) exposure to scrutiny that could ensue post-merger.

A more important possibility is whether Tesla is being moved to within a larger enterprise to finance ambitions that its shareholders have not supported thus far. For example, at the November 2025 Tesla shareholders’ meeting, a proposal to authorise the carmaker to invest in xAI failed under the company’s voting rules. Tesla nevertheless entered into the $2-billion investment agreement in January because the vote was nonbinding.

To wit, the companies significantly differ in their financial circumstances. SpaceX’s year-on-year revenue growth in the third quarter of 2026 was 161% while Tesla’s was roughly 0%. Tesla’s current value far exceeds what its current earnings would justify because the variance is rooted in speculation about autonomous vehicles and AI integration. Analysts have also said SpaceX shareholders could find themselves surrendering a significant share of what has become a highly profitable business to Tesla’s more speculative future earning.

Further, Mr. Musk currently owns around 20% of Tesla but has voting control at SpaceX with 85%. But Barclays has estimated that, depending on the post-merger structure, he could own 37% of the combined company’s equity but 56% of its voting power. That is, Mr. Musk could consolidate control over an enterprise worth many trillions of dollars without also holding a majority of its economic value. One important consequence of that may be a newfound ability to finance enterprises whose economic or institutional rationale is questionable, whose political importance for Mr. Musk is significant, and for which he can skip the support of other shareholders.

A similar issue came up in 2016 when Tesla acquired solar power company SolarCity, setting off years of shareholder litigation. Mr. Musk was at the time Tesla’s chairman and chief executive and SolarCity’s chairman and largest shareholder. SolarCity was facing significant liquidity problems and Tesla had agreed to acquire it in an all-stock transaction worth $2.6 billion but without appointing an independent committee to negotiate. For added measure, SolarCity was being run by Mr. Musk’s cousins Lyndon Rive and Peter Rive. A court ultimately ruled in Mr. Musk’s favour after shareholders alleged he had used Tesla to ‘salvage’ his investments in SolarCity but not before identifying several lacunae in the acquisition process, including conflicts of interest. (Per the court, Mr. Musk was nonetheless served well by having a majority of disinterested Tesla shareholders approve the deal.)

Boost vertical tech integration

A closely related issue is that the merger could increase vertical integration across technologies like communications and computing infrastructure — that many other businesses as well as governments rely on — raising the risk of preferential access and discrimination. (Reuters has also reported the merger could also prompt demands for extensive safeguards around information and technology sharing between SpaceX’s and Tesla’s U.S. and Chinese operations.) Seen another way, a number of services of strategic importance, including Starlink and Starshield, could depend on decisions made within one corporate system that also includes X.com.

Dangerous prospect

A recent example of the stakes concerns Starshield. The Wall Street Journal reported on October 20 that Mr. Musk had personally asked its operators at SpaceX to limit the connectivity of Ukrainian drones to its network, after his as well as U.S. President Donald Trump’s frustration over Kyiv attacking Russian oil refineries. While there appears to be some confusion over who first gave the order — Mr. Musk or someone in the White House — the merger could strengthen the corporation at its centre by bringing together in its halls aerospace, telecommunications, AI, robotics, computing hardware, power generation, and the requisite funds.

The final prospect is as dangerous as it is dazzling: a company that governments bank on for strategic capabilities yet which they cannot castigate without threatening their own interests — the ultimate expression of Mr. Musk’s parastate actions in Ukraine.

Considering SpaceX and Tesla already collaborate as well as can expand their cooperation through contracts, and if their technological benefits are available to reap without merging, those benefits alone will not suffice to explain why the companies prefer or need a merger. The answer, instead, might be what Mr. Musk needs.