TLDR
- Elon Musk is reportedly discussing a merger between Tesla and SpaceX, which is preparing for an IPO.
- A deal could see SpaceX use inflated IPO stock as currency to buy Tesla, which has a market cap of roughly $1.65 trillion.
- A combined entity would carry a ~$3.4 trillion valuation but would currently be unprofitable, with combined GAAP earnings running negative.
- Tesla shareholders would face dilution and inherit SpaceX’s stricter governance rules, which limit minority shareholder rights.
- Analyst Dan Ives puts the probability of a merger at 80%; betting site Kalshi shows 52% odds it happens by May 2027.
Tesla’s (TSLA) stock closed at $435.79 on May 29, down 1.43% on the day, as reports swirled about a potential merger between Elon Musk’s two biggest companies.
CNBC reported on May 27 that Tesla and SpaceX are weighing a combination. Tesla employees reportedly expect a transaction to “eventually take place,” and the topic is openly discussed internally.
Wedbush analyst Dan Ives put the odds of a deal at 80%, saying the game plan to fuse operations was already in place. Kalshi, the prediction market, currently shows 52% odds the deal closes by May 2027.
SpaceX is preparing for an IPO expected around mid-June, with a projected market cap of roughly $1.75 trillion. Tesla’s market cap sits at approximately $1.65 trillion — nearly identical.
If SpaceX acquires Tesla at those valuations, it would need to nearly double its share count. The combined entity would be valued at around $3.4 trillion, which would place it fifth among publicly traded companies globally, behind Apple, Alphabet, Nvidia, and Saudi Aramco.
The financial picture is the sticking point. Tesla posted $3.9 billion in GAAP net earnings over the past four quarters, down sharply from $15 billion in 2023. SpaceX recorded a net loss of $4.94 billion last year. On a combined basis, the pro-forma entity would currently be operating at a GAAP loss of roughly $1 billion per year.
Free Cash Flow Is Also a Problem
Cash flow adds another layer of concern. SpaceX ran a free cash flow deficit of $14 billion last year due to heavy spending on AI infrastructure. Tesla is ramping its own capital spending significantly, with at least $22.5 billion in capex planned for the remainder of this year alone.
Both companies would bring large investment needs to the table — neither is generating enough operating cash to self-fund growth.
Musk’s history with self-dealing mergers raises red flags for some observers. Tesla previously acquired SolarCity for $2.6 billion in stock in what many viewed as a bailout. More recently, Musk’s xAI bought Twitter’s successor X for $45 billion, then SpaceX acquired xAI at a $250 billion valuation — a chain of transactions that consistently benefited Musk at the expense of minority investors in the acquired companies.
Columbia Business School professor Michael Ewens told Yahoo Finance that any Tesla-SpaceX deal would almost certainly be a stock transaction, given SpaceX’s balance sheet. That carries risk: “If it were cash, Tesla shareholders would have much less to worry about.”
What Tesla Shareholders Stand to Lose
SpaceX’s IPO governance structure is notably tilted in Musk’s favor. His Class B shares carry 10 votes each, giving him 85% control of the company. SpaceX also does not require independent directors and mandates arbitration for shareholder disputes.
Tesla shareholders would get a vote on any merger — Musk holds roughly 20% of Tesla, not a controlling stake. But if a deal goes through, their effective ownership in the combined entity would shrink, and they would inherit SpaceX’s governance terms.
University of Colorado law professor Ann Lipton noted that Tesla shareholders might support a merger if it means Musk’s attention is no longer split between two public companies. “They would lose their control, but investors in Musk companies do not seem to value that much,” she said.
Investors looking to exit should note a warning from Columbia’s Ewens: Tesla shareholders who have concerns may have trouble selling post-merger if the deal closes close to the SpaceX IPO, potentially inheriting lockup provisions or facing a declining SpaceX share price after an opening day pop.
David Trainer, CEO of research firm New Constructs, has said a SpaceX-Tesla combination would need to generate nearly $500 billion in profits and $2.2 trillion in revenue by 2035 to justify current valuations — roughly double the already ambitious targets SpaceX faces on its own.
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