Key Takeaways
- Elon Musk is allegedly exploring a combination of Tesla and SpaceX as the rocket company readies its public debut.
- The proposed transaction could involve SpaceX leveraging its IPO shares as acquisition currency to purchase Tesla, valued at approximately $1.65 trillion.
- The merged company would boast a valuation near $3.4 trillion while operating at a loss, with negative combined GAAP profitability.
- Current Tesla investors would experience ownership dilution and become subject to SpaceX’s restrictive corporate governance framework that minimizes minority investor influence.
- Wedbush’s Dan Ives estimates an 80% likelihood of the merger proceeding; prediction platform Kalshi places odds at 52% for completion before May 2027.
Shares of Tesla (TSLA) finished trading at $435.79 on May 29, declining 1.43% amid escalating speculation regarding a possible combination of Elon Musk’s two flagship ventures.
On May 27, CNBC disclosed that discussions between Tesla and SpaceX regarding a potential merger are underway. According to the report, Tesla personnel anticipate such a transaction will “eventually take place,” with the possibility being an active topic of internal conversation.
Dan Ives of Wedbush Securities assigned an 80% probability to the deal materializing, asserting that a strategic blueprint for integrating the operations already exists. Meanwhile, Kalshi’s prediction market currently indicates a 52% probability of deal completion by May 2027.
SpaceX is positioning itself for a public offering anticipated around mid-June, targeting a market capitalization in the neighborhood of $1.75 trillion. Tesla’s current market valuation stands at approximately $1.65 trillion — remarkably similar figures.
Should SpaceX move forward with acquiring Tesla based on these valuations, the space company would need to essentially double its outstanding shares. The resulting combined organization would command a valuation approaching $3.4 trillion, positioning it as the fifth-largest publicly traded corporation worldwide, trailing only Apple, Alphabet, Nvidia, and Saudi Aramco.
The financial fundamentals present significant challenges. Tesla generated $3.9 billion in GAAP net income during the trailing twelve months, representing a dramatic decline from the $15 billion earned in 2023. SpaceX, meanwhile, reported a net loss of $4.94 billion in the previous year. On a pro-forma consolidated basis, the merged entity would currently be operating with an annual GAAP loss of approximately $1 billion.
Cash Flow Challenges Compound Financial Concerns
The cash flow situation introduces additional complications. SpaceX operated with a negative free cash flow of $14 billion last year, driven primarily by substantial investments in AI infrastructure. Tesla is simultaneously accelerating its own capital expenditure program, with projected spending of at least $22.5 billion scheduled for the remaining months of this year.
Both organizations would contribute substantial capital requirements to any combined entity — neither currently generates sufficient operating cash flow to fund expansion independently.
Musk’s track record with related-party transactions has triggered skepticism among certain market watchers. Tesla’s 2016 acquisition of SolarCity for $2.6 billion in stock was widely characterized as a rescue operation. More recently, Musk’s xAI purchased Twitter successor X for $45 billion, followed by SpaceX’s acquisition of xAI at a $250 billion valuation — a sequence of deals that consistently appeared to favor Musk over minority stakeholders in the acquired entities.
Michael Ewens, a professor at Columbia Business School, told Yahoo Finance that any Tesla-SpaceX transaction would almost certainly be structured as a stock deal, considering SpaceX’s financial position. That introduces significant risk: “If it were cash, Tesla shareholders would have much less to worry about.”
Potential Consequences for Tesla Investors
SpaceX’s planned IPO governance framework heavily favors Musk’s control. His Class B shares provide 10 votes per share, granting him 85% voting authority over the company. SpaceX’s structure also eliminates requirements for independent board members and requires arbitration for shareholder disputes.
Tesla investors would receive voting rights on any proposed merger — Musk controls approximately 20% of Tesla, falling short of majority control. However, if the transaction proceeds, their proportional ownership in the consolidated company would decrease substantially, and they would become subject to SpaceX’s governance provisions.
Ann Lipton, a law professor at the University of Colorado, suggested that Tesla shareholders might approve a merger if it results in Musk focusing his efforts on a single public entity rather than dividing his time. “They would lose their control, but investors in Musk companies do not seem to value that much,” she observed.
Investors considering an exit should be aware of a caution from Columbia’s Ewens: Tesla shareholders with reservations may encounter difficulties liquidating positions following a merger if the transaction closes near the SpaceX IPO timing, potentially facing lockup restrictions or experiencing declining SpaceX share values after an initial trading surge.
David Trainer, CEO of investment research firm New Constructs, has calculated that a SpaceX-Tesla merger would require generating approximately $500 billion in profits and $2.2 trillion in revenue by 2035 to support present valuations — roughly twice the already aggressive projections SpaceX confronts independently.
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