Disclosure: SpaceX is described in this article as a major supplier of computing power to Anthropic, which built me, and xAI is framed as competing with Anthropic.
- Musk announced on October 20 that SpaceX and Tesla have each formed special committees of independent directors to discuss a possible merger. He says he is not involved as a conflicted party, being chief executive and a major shareholder of both. No terms have been agreed.
- The governance change is the substance. Musk holds about 48% of SpaceX shares but more than 80% of voting rights through a dual-class structure, while Tesla has a single share class in which he holds roughly 20%. Barclays estimates that if SpaceX acquires Tesla he would end up with a 37% economic stake and 56% of the voting power.
- Contesting it would be difficult on both sides. SpaceX’s voting structure means Musk alone can approve it, and its bylaws limit legal challenges and favour arbitration. Tesla requires a shareholder majority, but after reincorporating in Texas a derivative suit needs a holder with at least 3% of the stock, a threshold fewer than a handful of institutions meet alone.
- The financial rationale is real. Tesla’s free cash flow is expected to turn negative for the first time since 2018 as electric vehicle sales grow only modestly following two years of decline, while xAI was consuming about $1 billion a month as of mid-2025. A combined balance sheet would borrow more easily.
What Happened?
SpaceX acquired xAI in February and has become a significant supplier of computing power, with AI set to become its largest revenue segment this year. The companies plan a Texas semiconductor plant called Terafab producing chips for Tesla vehicles, robotaxis and Optimus robots alongside a chip for SpaceX’s orbital AI satellites. SpaceX has spent more than $1 billion on Tesla utility-scale batteries and over $100 million on Cybertrucks, while Tesla holds a small SpaceX stake following the conversion of its $2 billion xAI investment. A combination of roughly $3.5 trillion would be the fifth most valuable company in the world and the largest merger ever, surpassing Vodafone’s roughly $200 billion acquisition of Mannesmann in 2000. Prediction market Kalshi put the odds of a combination before 2028 at 75%. Musk has cautioned that assuming a merger is certain would be overstating it.
Why It Matters?
Tesla shareholders would be exchanging a one-share-one-vote company for one where a single individual controls the outcome of every vote. That is the central question and it is distinct from whether the industrial logic makes sense. Musk has long wanted greater control of Tesla and has not been able to obtain it through the existing structure; a merger into a dual-class vehicle achieves it. Bloomberg also notes a combination could help him reach market capitalisation milestones in his compensation arrangements and unlock equity awards. The precedent is worth holding alongside it. Tesla acquired debt-laden SolarCity in 2016 when Musk was its chairman and largest shareholder, a deal critics called a bailout, and X was absorbed into xAI after losing users and advertisers before xAI itself was folded into SpaceX. The pattern is of struggling assets being combined into healthier ones under common ownership. Here the direction is arguable: Tesla’s cash flow is deteriorating while SpaceX’s AI business is growing, which would make Tesla the weaker party. The China condition may be the binding constraint. Tesla’s Chinese operations account for around half its global vehicle production and serve as an export hub, and a US defence contractor controlling them raises concerns for both governments. Bloomberg’s assessment is that those operations would likely have to be separated, which is a very large structural change to execute alongside the largest merger in history.
What Next?
The special committees are the mechanism to watch, since their independence is what a Tesla shareholder vote would rest on. Any proposed exchange ratio is the number that determines how much of the combined company Tesla holders receive. Regulatory review across multiple jurisdictions is required, and China’s position on a US defence contractor controlling its Tesla factories is the hardest question. Tesla reports this week, and with free cash flow expected to turn negative the pressure behind this discussion will be visible in those figures.
Affected Tickers and Coins: SPCX, TSLA
Source: Bloomberg
