SpaceX and Tesla Discuss Merger, Valued at About $3.5 Trillion

[[**SpaceX third-quarter revenue was $14.6 billion and net profit $4.4 billion, with its AI business surpassing its connectivity business for the first time; Musk confirmed that SpaceX and Tesla have each established independent special committees of the board to discuss a merger, with a combined valuation of about $3.5 trillion, but the deal faces regulatory and control battles.**

**Key points**

**1. SpaceX has effectively transformed into an AI computing company**

AI and computing revenue was $7.56 billion, up more than 9x year over year, surpassing the connectivity business for the first time; the traditional launch business grew only 6%. The company is in talks to borrow $40 billion to purchase Nvidia chips.

**2. The narrative that Tesla is funding SpaceX lacks data support**

Tesla's free cash flow is negative, while SpaceX holds $51.3 billion in cash and $38.6 billion in marketable securities. A merger does not directly add cash; the core is changing financing methods and capital allocation authority.

**3. The control structure is key to the deal design**

Musk has about 82% voting power at SpaceX and about 17% at Tesla; if a stock-for-stock merger occurs, he could hold about 56% voting power with about 37% economic interest, closing the gap he wants to narrow in his Tesla stake.

**4. Regulation and national security are the biggest challenges**

SpaceX is a major contractor for the U.S. military, intelligence agencies and NASA, and Starshield is militarily sensitive; review will involve antitrust, national security and foreign investment, and a blockage at any stage would change the shape of the deal.

**5. Pricing terms have not been finalized, and market reaction is limited**

After the news, SpaceX rose about 8% after hours, while Tesla rose only 1.8%; watch the independence of the special committees, the December 3 annual shareholder meeting, the terms of the $40 billion borrowing and progress on Terafab. 2026-10-21 21:23 Musk is playing a big game Wall Street Insights quick read

This article is from the WeChat public account: Wall Street Insights, author: Zhang Yaqi

SpaceX has delivered results that are hard to sum up any longer as a "rocket company": in the third quarter, SpaceX revenue was $14.6 billion, up 161% year over year, and net profit was $4.4 billion, more than double the analysts' average estimate.

On the earnings call, Musk confirmed that SpaceX and Tesla have each established special committees composed of independent directors to discuss a possible merger. The two companies have a combined valuation of about $3.5 trillion.

Musk first said he was "tap-dancing in a minefield." A few seconds later he still gave an answer: a merger has "a lot of benefits." Gene Munster of Deepwater Asset Management later counted that Musk said this about three times.

This brought a long-discussed idea into formal evaluation: Bloomberg noted that Tesla has a market value of about $1.5 trillion and SpaceX about $2 trillion, for a combined $3.5 trillion.

Whether they will merge should no longer be the question. Barclays said in an October 14 report that the possibility of a merger "has increasingly become the consensus expectation." The shareholder registers overlap heavily: SpaceX buys Tesla's Cybertruck and also buys utility-scale energy storage batteries through xAI.

After the news emerged, SpaceX rose about 8% after hours, while Tesla rose only about 1.8%—the acquirer rose more than the target. This difference reflects the very different calculations of the two types of shareholders and also signals that there is still a long game to play before the deal is formally completed.

SpaceX's AI business is already too big to be treated as a side business

SpaceX's third-quarter revenue structure explains why merger discussions heated up at this time.

AI and computing business revenue was $7.56 billion, up more than ninefold from a year earlier, and has surpassed for the first time the connectivity business that includes Starlink; quarterly operating profit swung from a loss of $1.7 billion a year earlier to a profit of $431 million. Connectivity business revenue was $5.25 billion, up 69% year over year, and still contributes more profit, but its growth is clearly slower than the AI business.

By comparison, the traditional launch business of designing, manufacturing and operating rockets and spacecraft had revenue of $1.77 billion, up only 6%.

The other side of growth is spending. In the third quarter, SpaceX capital expenditure was nearly $19.6 billion, of which about $16.4 billion was for the AI and computing business. In the first nine months, the company's operating cash flow was about $13.1 billion, and spending on property, plant and equipment was about $48.1 billion. Looking only at quarterly net profit of $4.4 billion makes it easy to underestimate the true scale of capital needed to build computing facilities.

According to reports, SpaceX is in talks to borrow $40 billion to purchase Nvidia chips. CFO Bret Johnsen said the company will continue to take on debt, "there are several usable debt pools in discussion," and gave guidance of total revenue of up to $37 billion in the first quarter of next year.

SpaceX is already a major computing and infrastructure supplier to companies such as Anthropic and Alphabet, and in August it also acquired the code editing tool Cursor. For a company whose revenue structure is most heavily weighted toward AI and which is borrowing heavily to buy chips, defining it as a "rocket company" is far from enough.

The synergy logic is clear, but a stock merger is not necessarily the only path

Musk's list of cooperation areas covers superintelligent software, chip design, Terafab, robots, orbital data centers and connectivity services.

These projects keep running into the same set of resources: chips, energy, manufacturing capacity, and capital capable of sustaining the construction costs. "Simplifying decision-making" ranks high among the motivations for a merger—many cross-company projects require separate approval from two boards and two sets of shareholders.

Terafab is the most concrete node among them. According to Barclays' estimates, Tesla plans to first build a research facility in Austin costing about $3 billion, followed by a production plant of about $16.8 billion, with the two companies likely to fund it jointly. The chips produced there will supply Tesla's self-driving cars and Optimus robots, as well as SpaceX's AI and orbital data centers.

Musk has previously made clear that decisions on Terafab require approval from each of the two boards, "may take a while," and the target is mass production by the end of 2028.

The new Roadster unveiled on October 15 is equipped with cold-gas thrusters developed by SpaceX, enabling maneuvers such as reversing up a slope and turning in midair. Gene Munster's assessment of that launch event was "an engineering flex," and he said Musk "can't wait" to merge.

However, deep business cooperation does not directly prove that equity must be merged. The core question the special committee needs to answer is whether the incremental value created by cooperation is sufficient to offset transaction costs, regulatory friction and integration risks.

The narrative that "Tesla is bankrolling SpaceX" is not supported by the numbers

Among the merger rumors, one intuitive claim is that SpaceX is building out AI infrastructure on a massive scale, and Tesla can provide cash flow. This claim grasps the fact that SpaceX's capital expenditure is enormous, but overestimates the funds Tesla currently has available to deploy.

According to Bloomberg consensus estimates, Tesla's free cash flow in 2030 will be about $12 billion, while SpaceX is expected to consume about $17 billion by then—the two are moving in opposite directions.

Nearer-term figures are equally unoptimistic: Tesla's free cash flow in the second quarter was negative $1.1 billion; analysts forecast a mean free cash flow of negative $4.5 billion for the third quarter, and about negative $9.7 billion for the full year of 2026.

Meanwhile, as of the end of September, SpaceX held about $51.3 billion in cash and $38.6 billion in marketable securities, so its funding position is not lacking.

A merger will not create a single extra dollar of cash out of thin air; what it may change is the financing methods and capital allocation authority—which projects will be built uniformly by the merged company, which costs will be shared across different businesses, and how much capital investors are willing to provide for this entire set of plans.

For Musk, unified resource allocation may be more efficient; for Tesla shareholders, the question is how the value created by the automotive, energy storage and robotics businesses will be allocated to SpaceX's computing power, satellite and space projects. If the transaction plan cannot explain this clearly, "synergy" will instead become a concern about runaway capital expenditure.

The control structure may be the most critical stroke in the deal design

Analysts generally believe that beyond economic interests, this transaction has another layer of logic—control.

Barclays estimates that Musk holds about 48% of SpaceX's economic interest and controls about 82% of the voting rights through Class B shares with 10 votes per share; he holds about 20% of Tesla, equivalent to nearly 17% of voting rights. If SpaceX acquires Tesla in a share swap at its current valuation, he would hold about 37% of the economic interest and control about 56% of the voting rights in the combined company.

RBC's calculation differs slightly; it believes Musk controls 85% of SpaceX's voting rights, but the direction is the same: the transaction would replicate the structure of "less than 40% economic interest but more than half the voting rights" onto a company on the scale of $3.5 trillion.

Musk has publicly said he wants to hold about 25% of Tesla's equity, which he considers sufficient to maintain influence over the AI and robotics strategy, and there is still a gap. This transaction can use SpaceX's dual-class share structure to fill that gap.

This directly affects the difficulty of negotiations. Musk himself has acknowledged a conflict of interest and cannot participate in the special committee's discussions. The committee must not only assess business synergies but also determine the respective valuations, the share exchange ratio, any possible premium, and how much economic interest and voting power each class of shareholders will hold after the merger.

The one who truly holds the veto is Washington

Reuters lists geopolitics and regulation as the "biggest challenge" to the merger: SpaceX is a major contractor for the U.S. military, intelligence agencies and NASA, and Starshield has already been used for battlefield communications. Both Musk and Trump deny placing restrictions on it, but the military sensitivity of this system is beyond doubt.

Therefore, the review dimensions for the merger will expand from antitrust to national security. Antitrust review, approval by both sides' shareholders and boards, and foreign investment review—if any of these three procedures gets stuck, the shape of the transaction will change. This type of transaction has no precedent in business history, and there is no ready-made regulatory template.

The market gives an answer, but pricing needs refinement

After the special committee news was confirmed, SpaceX rose by as much as about 8.6% after hours, while Tesla rose only about 1.8%. SPCX traded at $161.18 in premarket at one point, about 9% above the closing price.

Chad Anderson of Space Capital offered a narrative: the merged company would be the only enterprise with a complete "physical AI stack," from chip manufacturing to orbital data centers to ground-based autonomous devices, and no competitor has a corresponding complete system. His firm was an early investor in SpaceX.

RBC gave Tesla a $480 price target, implying less than 30% upside from a closing price near $368. For Tesla shareholders, the math is not hard to do: swap a predictable auto cycle for a long-term option on an AI compute company. But whether that swap is worthwhile depends on the exchange ratio and the post-merger capital allocation plan, and neither document currently exists.

It is worth noting that SPCX, the acquisition currency, IPO'd in June this year at a price of $135, opened at $150 on its first day, and four months later the stock price has essentially returned to its starting point.

When a recently listed stock is used as acquisition consideration, its pricing benchmark still relies mainly on investment bank models, and the secondary market has not yet been fully tested through repeated trading. If only the vision continues to heat up while the deal terms remain absent, the stock price reaction can hardly substitute for substantive scrutiny of the exchange ratio and the capital plan.

Four things to watch most closely right now

First, the composition and independence of the special committee.

Both companies say the committee is composed of independent directors, but who the members are, whether an independent financial advisor has been hired, and whether the advisor issues a fairness opinion will determine whether shareholders see this plan as "Musk's idea" or "the board's judgment."

Second, how the December 3 annual shareholder meeting will be used.

Tesla has already set its 2026 annual shareholder meeting for December 3. Based on currently disclosed information, this annual meeting cannot be regarded as a merger vote that has already been scheduled. Announcing the deal intention before the annual meeting makes it easier to organize opposing votes; announcing it separately would mean a longer regulatory window and more variables.

Barclays' analysis says that if the announcement is chosen for late October or early November, it would actually be harder for shareholders to vote in favor at the annual meeting—the opposite of the intuition of "cooking the rice before the window closes."

Next, the terms and timing of that $40 billion borrowing.

If these funds land before the merger is finalized, it means SpaceX intends to lock in compute capital expenditure before the deal is completed, and the significance of the merger to SpaceX would lean more toward supplementing cash flow rather than co-investing.

Finally, Terafab and the actual numbers in Tesla's financial report.

For the Texas facility, land, environmental review, and equipment orders—if any link slows down, the target of mass production by the end of 2028 will have to be pushed back. And Tesla's third-quarter financial report will simultaneously present capital expenditure, free cash flow, and management's latest statements on Terafab, robots, and compute investment—if cash burn continues to expand, shareholders' demands for capital discipline after the merger will only grow higher.

What Musk wants to push forward may be a company that can coordinate on its own from chips and energy supply to compute and connectivity networks, and then to robotic applications.

How big this chessboard is can already be seen from SpaceX's revenue structure and investment scale. Whether it can benefit shareholders will have to wait for the special committee to produce a price, governance arrangements, and verifiable synergy gains. For now, what should be watched most closely is the cash flow in Tesla's financial report, and the next formal transaction document from the two companies. Channel: Finance and Economics. This content is published with the author's authorization, and the views represent only the author and do not represent Huxiu's position. If you have objections or complaints about this manuscript, please contact tougao@huxiu.com. People who are changing and want to change the world are all on the Huxiu APP[ ]