SpaceX and Tesla Weigh a Merger; Musk's Public Support May Slow It

A merger between SpaceX and Tesla went public this week through two channels. First, Musk raised it himself on SpaceX's October 20 earnings call. Then Reuters reported that his remarks could slow the talks.

According to Reuters' sources, talks are at an early stage, and SpaceX approached Tesla in recent weeks. Two structures are on the table: SpaceX acquiring Tesla, or both merging under a new holding company. An all-stock deal is being discussed, with a potential combined value of about $3.5T.

What Musk Said and Why Insiders Objected

Musk told the call that both companies had formed special committees of independent directors. "There's a lot to be gained from cooperating on developing super intelligence software, chip design, the Terafab obviously."

A person with direct knowledge told Reuters the disclosure was a mess. Conflicted parties typically avoid public views while independent directors evaluate a deal. The sources say open support could invite shareholder scrutiny and delay the process by several weeks.

The precedent sits in Tesla's own history. In the 2016 SolarCity deal, the Delaware Supreme Court cited Musk's involvement in, and public support for, the transaction. Tesla's directors settled that litigation for $60M.

The next day, on Tesla's own call, investor relations said it would not take merger questions. Musk said he had already said what should be said and likened the process to tap dancing through a minefield.

This is not a matter of etiquette. The committees exist to set one number, the exchange ratio, independently of Musk.

Who Pays the Premium

In an all-stock merger, Tesla holders receive SpaceX shares. If Tesla is priced above its market value, the premium is not paid in cash. It is paid by shrinking existing SpaceX holders' stake in the combined company.

The math assumes a 48% SpaceX stake; Reuters says only just under half. On every premium dollar, Musk receives 20 cents and pays 48 cents, a net cost of 28 cents. As long as his SpaceX stake exceeds his Tesla stake, a low premium works in his favor.

Wedbush's Dan Ives said Tesla holders would likely need $500 to $550 per share. That implies a premium of 29% to 42% over the $386.47 close.

Tesla's Quarter Feeds the Merger Case

Tesla's third-quarter earnings also show why a merger is being discussed. Revenue was flat at $28.05B, and operating income fell 56% to $718M. Operating expenses rose 39%, driven by a 69% jump in R&D.

Musk said the Terafab chip plant project would cost north of $100B over the long term. According to Investing.com, how that cost is split between Tesla and SpaceX has not been settled. In a combined company, the split question disappears.

The lower target eases the cash picture. Free cash flow turned positive at $1.53B, and the company ended the quarter with $45.4B in cash and investments. The stock first rose after the release, then fell about 3% after hours on caution over Optimus and robotaxi timelines.

There is one more detail: Tesla booked a $142M unrealized loss on its SpaceX stake this quarter. A financial link between the two companies already exists.

Vote and Law Remain Uncertain

Musk said a merger would need approval from half of all shares, not just those voting. If Musk's roughly 20% stake counts, persuading 37.5% of the remaining 80% would be enough.

Tesla is now incorporated in Texas, so the Delaware law that governed the SolarCity case no longer applies. Law professor Eric Talley says no one knows how Texas will treat cases like this. Global regulators will also weigh in, given Tesla's China business and SpaceX's defense work.

The chart shows live where Tesla shares stand before and after the merger reports. Ives puts the odds of a deal closing by the end of 2027 at 80% to 90%.

What It Means for Investors

• The market has not priced the merger as a certainty; Tesla trades at $386, well below the $500 to $550 range Ives cited.
• For Tesla holders the key variable is the premium; for SpaceX holders it is how much their stake in the combined company shrinks.
• If the committees' exchange ratio grants Tesla less than a 29% premium, the risk of shareholder objections and litigation rises.
• The risk to the thesis is that the delay Reuters describes turns into shareholder litigation and an unprecedented process in Texas courts.

Sources: Musk's remarks are from SpaceX's October 20 earnings call, as reported by CBS News. The stage of talks, structure options and insider objections come from a Reuters exclusive dated October 22. Tesla's quarterly figures are from the company's third-quarter update; the capex target and Terafab cost come from Investing.com coverage of the call. Premium and stake calculations are Açılış Zili's own, assuming a 48% Musk stake in SpaceX.