Why Tesla and SpaceX Still Want to Merge: The Capital and Shareholder Challenges Behind a $3.5 Trillion Deal

[[**Musk supports a Tesla-SpaceX merger but recuses himself from negotiations due to conflicts of interest; the two companies have a combined valuation of about $3.5 trillion, and the deal still must resolve shareholder fairness, capital allocation, and regulatory challenges.**

**Key Points**

**1. The merger aims to unify capital and technology allocation**

The two sides already collaborate on Terafab, AI, computing power, and energy storage procurement, but under separate legal entities capital cannot flow freely; a merger could unify governance and budgeting and reduce coordination costs.

**2. The deal is still at the research stage, with a valuation of about $3.5 trillion**

The two sides have established special committees to evaluate options including a merger, but no terms have been reached. SpaceX's roughly $2 trillion plus Tesla's roughly $1.5 trillion is only the existing valuation, not value newly created by the merger.

**3. The share-exchange ratio involves hundreds of billions of dollars in shareholder interests**

Having the same CEO does not mean shareholders' interests are aligned. The exchange ratio determines how equity is divided between Tesla shareholders and SpaceX shareholders, and analysts are clearly divided on whether Tesla should receive a premium.

**4. Unified capital allocation and regulatory feasibility remain to be proven**

Both companies require massive capital expenditure, and after a merger funds must be allocated among AI infrastructure, autonomous driving, and robotics; the SolarCity litigation and cross-border national security review also require fair pricing and regulatory feasibility. 2026-10-27 12:05 Zhanmo Tianmo | Tesla in the left hand, SpaceX in the right—why does Musk still want to merge them? Zhanmo Tianmo Quick Overview

This article is from the WeChat public account: Zhanmo Tianmo, author: Zhanmo Tianmo, original title: "Zhanmo Tianmo | Tesla in the left hand, SpaceX in the right—why does Musk still want to merge them?"

Musk publicly supports a merger between Tesla and SpaceX, but cannot personally participate in the core negotiations.

He leads both companies, so why would he need to recuse himself when it comes to a merger?

On October 20, Musk confirmed that Tesla and SpaceX had each established independent board special committees to study a potential transaction. He publicly supports the merger but acknowledged that he has a conflict of interest and cannot directly participate in negotiations between the two special committees.

Based on market valuations at the time, SpaceX was about $2 trillion and Tesla about $1.5 trillion, for a combined total of about $3.5 trillion. If the merger is ultimately completed, it will become one of the largest transactions in global corporate M&A history.

At present, the transaction is still at the research stage. Tesla disclosed that the special committee is evaluating options for deepening the relationship between the two sides, including but not limited to a corporate merger.

The two sides have not yet reached transaction terms, and there remains significant uncertainty over whether the merger can be realized.

1

They can already cooperate, so why merge?

Tesla and SpaceX already cooperate in areas such as the Terafab chip manufacturing project, artificial intelligence, and computing infrastructure, and their business dealings are already substantial.

Tesla's third-quarter financial report shows that in the first three quarters of 2026, the company recognized $626 million in revenue from sales of Megapack energy storage products to SpaceX. As of the end of September, related receivables were $729 million, including milestone billings for products not yet delivered and capacity reservation payments.

In March this year, Tesla also invested $2 billion to buy SpaceX shares, holding less than 1%.

Even while maintaining separate legal entity status, the two companies can cooperate through procurement contracts, equity investments, and joint research and development.

But strategy can be coordinated by the same person; capital, however, cannot flow freely simply because there is a shared leader.

The same chip technology may serve both Tesla's autonomous driving and SpaceX's artificial intelligence business, but R&D costs, intellectual property, capacity allocation, and revenue attribution all need to be determined through corresponding arrangements.

If merged, some funds, technology, and infrastructure could enter a common governance and capital allocation system, and cross-company coordination costs could also decline.

Several businesses Musk is pushing increasingly depend on coordination among chips, computing power, energy, and physical equipment. A unified organization could improve the efficiency of developing and allocating these capabilities, which may be an important reason he supports the merger.

But the two companies' assets belong to different shareholder groups, and the existing cooperative relationship cannot automatically eliminate property boundaries.

In the third quarter of 2026, SpaceX achieved operating revenue of about $14.6 billion, up 161% year on year, and net profit of about $4.4 billion.

Among this, superintelligence business revenue was $7.560 billion, compared with $813 million in the same period last year, an increase of about 830%. The connectivity services segment, including the Starlink business, had revenue of about $5.248 billion, and space business revenue was about $1.767 billion.

In the third quarter of this year, artificial intelligence has become SpaceX's largest business segment by revenue.

As of September 30, the company's nominal computing facility capacity reached 1.7 gigawatts. SpaceX's business has expanded from space launches and satellite communications to computing infrastructure and artificial intelligence services.

Tesla, meanwhile, continues to invest in autonomous driving, AI chips, humanoid robots, and energy storage systems, seeking to apply the manufacturing, perception and control, and supply chain capabilities accumulated in the auto industry to more fields.

The Terafab project jointly advanced by both sides makes this industrial connection more concrete.

Tesla needs to provide computing power for autonomous driving and robots, while SpaceX needs to support its continuously expanding artificial intelligence business. Both sides need high-performance chips and both face massive R&D and infrastructure investment.

Automobiles, aerospace, communications, and artificial intelligence have different products and markets, yet they increasingly rely on similar underlying capabilities. Chips, algorithms, computing power, and energy are becoming infrastructure that multiple industries need in common.

In the past, companies mainly organized technology, production, and capital around specific products. Today, the same set of underlying capabilities may serve multiple industries, and who builds them, how they are used, and how costs are shared are becoming new business questions.

What Musk is considering may not simply be merging an automobile company with an aerospace company, but building an industrial system capable of coordinating multiple technology and capital investments.

However, automobile manufacturing, space launches, and artificial intelligence infrastructure still have different investment cycles, operating risks, and return profiles. Technology can be reused, but capital may not be suitable for indiscriminate investment.

How much duplicate investment a unified organization can reduce and how much resource efficiency it can improve will directly affect the economic value of this merger.

3

After the merger, who decides the next investment?

SpaceX's capital expenditure in the third quarter was approximately $19.6 billion, and the company expects fourth-quarter capital expenditure to reach $35 billion to $40 billion, mainly for computing infrastructure and other project construction.

Although net profit for the quarter reached $4.4 billion, profit does not equal cash flow available for investment. Rapidly expanding artificial intelligence infrastructure still requires large amounts of funding.

Tesla is likewise in a phase of high-intensity investment. According to documents filed with the U.S. Securities and Exchange Commission for the third quarter, Tesla's capital expenditure in the first three quarters of 2026 reached $13.01 billion, and is expected to exceed $20 billion for the full year.

As of the end of September, the company held approximately $45.45 billion in cash, cash equivalents, and short-term investments, and cash flow generated from operating activities in the first three quarters was approximately $14.9 billion.

Both companies have important operating foundations and both need to invest enormous funds in future businesses; it cannot simply be assumed that SpaceX needs money and Tesla is responsible for providing it.

If merged, investment plans originally formulated separately could enter a unified capital budgeting system.

SpaceX needs to expand artificial intelligence infrastructure, while Tesla must continue developing autonomous driving and robotics businesses. Facing limited funds, how will management determine investment priorities?

If a business has broader growth prospects, should it receive more funding? If it cannot generate returns commensurate with investment over the long term, should other businesses continue to support it?

These are not funding arrangements already determined by the two sides, but business choices that a unified capital structure may bring.

When operating independently, the two companies cooperate through contractual arrangements and each bears corresponding funding costs and risks. After a merger, management may gain greater room for resource allocation and also need to establish stricter investment discipline.

If unified capital allocation can reduce duplicate construction, lower coordination costs, and improve overall returns, the merger may create value. Conversely, if a business occupies large amounts of capital for a long time without generating sufficient returns, unified operation may also cause other businesses to bear the cost of investment mistakes together.

Musk may hope to gain stronger capital allocation capabilities, but whether investors in different businesses are willing to accept such an arrangement is another matter.

4

Why can the same boss not represent all shareholders?

Musk serves as chief executive officer of both Tesla and SpaceX, is SpaceX's controlling shareholder, and is also an important shareholder of Tesla.

He can support the development of both companies at the same time, but this cannot lead to the conclusion that the shareholders of both sides have completely identical interests.

Based on the valuations when the potential merger discussions were made public, Tesla was approximately $1.5 trillion and SpaceX approximately $2 trillion. But adding the two numbers together cannot directly form a fair transaction plan.

If the merger is carried out through a stock swap, how much equity should Tesla shareholders receive? How much should SpaceX's existing shareholders retain?

On October 21, Reuters reported that Wall Street analysts clearly differed on the transaction premium Tesla shareholders might receive, with discussions covering different scenarios ranging from no additional premium to a relatively high premium.

Assuming a valuation based on Tesla's $1.5 trillion valuation and a 35% transaction premium, the corresponding additional valuation would be approximately $525 billion.

This is only a hypothesis in market analysis, not a condition already proposed or accepted by the two parties, yet it is enough to show how determining the stock swap ratio may involve the redistribution of hundreds of billions of dollars in interests.

The higher the consideration Tesla shareholders receive, the more equity they usually obtain after the merger; SpaceX's existing shareholders may face corresponding dilution. If the consideration is too low, Tesla shareholders may also be unable to obtain equity commensurate with their assets, profitability, and future growth expectations.

Even if the transaction price is agreed, shareholders of both sides still need to face a recombination of operating risks.

Tesla shareholders originally invested in an enterprise with automobiles, energy, and artificial intelligence-related businesses as important foundations; SpaceX shareholders hold a company covering aerospace, satellite communications, and artificial intelligence infrastructure.

The merger may cause both sides to jointly bear operating risks that originally belonged to different businesses, and these risks may not match the initial investment choices of every type of investor.

Musk therefore avoided direct negotiations between the special committees. But the disclosure on October 22 also showed that, as SpaceX's controlling shareholder, he still holds important final approval authority.

This does not necessarily mean there is a problem with the process, but it makes independent review particularly important. The special committee needs to represent the interests of the two companies separately, reviewing the necessity of the merger, the valuation method, the share exchange ratio, and potential risks, rather than making a decision solely based on the strategic vision of the shared leader.

For Musk, the merger may mean a more complete industrial system; for the different shareholders, however, it is a major transaction concerning asset pricing, risk bearing, and the distribution of future returns.

Whether the transaction is fair cannot be judged only by how much value the merged enterprise can create, but also by what the different shareholders each give up in order to obtain that value.

5

What lessons did SolarCity leave ten years ago?

In 2016, Tesla acquired SolarCity through a stock transaction, hoping to integrate electric vehicles, solar power generation, and energy storage businesses to build a more complete clean energy system.

This transaction had industrial rationality, but because Musk had close shareholding and governance relationships with both parties, it triggered shareholder litigation that lasted for years.

Some Tesla shareholders believed that Musk exerted improper influence over the transaction and questioned whether the acquisition price was fair.

In 2022, the Delaware Court of Chancery found that the transaction met the entire fairness standard. In June 2023, the Delaware Supreme Court upheld the original ruling. Although the first-instance ruling had legal application flaws in its fair price analysis, they were not sufficient to overturn the conclusion that the transaction was entirely fair.

The court ultimately did not find that Musk needed to bear compensation liability for this transaction.

The SolarCity case shows that a reasonable industrial strategy cannot replace review of the transaction process and price fairness. Even if the two parties have a clear synergistic relationship, it still needs to be proven that the transaction does not unfairly harm shareholder interests.

Today's potential merger between Tesla and SpaceX far exceeds that of the past in scale and complexity, and may also face cross-border regulatory issues.

Tesla is deeply involved in Chinese manufacturing and global supply chains, while SpaceX undertakes U.S. government aerospace and defense-related business. If the two companies merge, issues such as cross-border technology sharing, data flows, and national security may all face further scrutiny from relevant regulatory authorities.

Even if both parties resolve the issues of transaction price and shareholder interests, they still need to prove that the integration plan is regulatory feasible.

Technical synergy, transaction arrangements among shareholders, and regulatory feasibility each correspond to different constraints.

Musk can reimagine the industrial boundaries of the two companies, but he must still implement it within the scope permitted by capital markets and institutional rules.

6

$3.5 trillion—how much new value can it actually create?

What Musk hopes to integrate may be an industrial system covering artificial intelligence, chips, computing power, energy, and physical infrastructure.

But Tesla and SpaceX are already able to cooperate through joint Terafab research and development, Megapack procurement, and equity investment. Benefits that can be achieved under independent operation cannot all be counted as new value created by the merger.

To judge whether this transaction is economically rational, it is necessary to compare the additional cash flow brought by the merger with the additional costs, and to factor in integration risks as well as the benefits that could originally have been obtained through cooperation.

$3.5 trillion is a market estimate of the existing value of the two companies, not the new value that the merger can create. Even if unified operation improves resource efficiency, it must be proven that the incremental benefits are sufficient to compensate for the integration costs and are distributed to different shareholders through fair transaction arrangements.

The two companies can be led by the same person, but they do not belong to the same group of shareholders.

Musk has the right to propose his own industrial vision, but he cannot decide on behalf of all shareholders how much they should pay for it. Channel: Finance and Economics

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