Elon Musk hints at Tesla-SpaceX merger as AI spending drives company overlap

Musk Leaves Room For a Potential SpaceX-Tesla Merger

Elon Musk has a lot of companies, and lately his hobby has been mergers. Earlier this year, the billionaire's space company SpaceX acquired his artificial intelligence company xAI (now SpaceXAI) in a $1.25 trillion deal. The joint entity, known just as SpaceX, went public in a record $75 billion IPO earlier this summer (though its stock has been trending down since). On the heels of that financial success, people are largely expecting Musk to further capitalize on that hype and merge his electric vehicle company Tesla with SpaceX. The two companies already work together on a lot, including the integration of SpaceXAI's Grok chatbot into Tesla's vehicles and a giant join-venture chip factory in Texas called the Terafab. When asked about it by analysts in Tesla's earnings call on Wednesday, Musk avoided answering the question. "Well, I mean, as you can tell from all the many collaborations on so many fronts with SpaceX, there's more and more overlap, especially with the Terafab, that's really going to be a gigantic project," Musk answered. "But obviously, you know, we can't talk about combining companies, that kind of thing, on earnings calls." Then Musk went on what sounded like a sales pitch for how he thinks SpaceX can further Tesla's mission. He said SpaceX's Starlink can ensure better and more expansive connectivity for Tesla's autonomous vehicles like the Cybercab, even in any "Bermuda triangles with lack of cellular connectivity," and promised the merits of integrating SpaceXAI's Grok into Tesla's Optimus robots, a plan that he debuted earlier this year in a project called "Digital Optimus." Following Musk's answer, analysts seem to have upped their bets that a merger is indeed on the horizon. "Going into the call, I thought there was an 80% chance the two companies come together in the next few years," investment company Deepwater's co-founder and managing partner Gene Munster said in a post on X. "I'm raising that to 90%." This latest earnings report left investors with more questions than answers. The company's stock was down after the report dropped, as the company's increasing expenses poured into AI have started to weigh on its financials. Even though revenue came above expectations, the company's earnings per share (a metric that shows how much profit a company makes per share of its stock) was down way below market expectations. Tesla is expecting to spend more than $25 billion this year, largely due to AI. That financial commitment helped drive the company's free cash flow negative this past quarter. "This is a massive capex year, but I'm confident that all the things that we're investing in will yield incredible returns," Musk said at the call, in an effort to justify the numbers. Musk said he specifically asked his team to spend money "as fast as we can without it being too wasteful," because aiming for "extremely high efficiency" spending would allegedly only slow down the amount of innovation and production that the company has been aiming for. "We're bringing an incredible amount of construction and production growth in so many different arenas simultaneously," Musk claimed. "I think probably this is the fastest industrial scale up since World War II in America."

Musk leaves door open to Tesla-SpaceX merger

Elon Musk has suggested a possible merger between Tesla and SpaceX, citing increasing overlap. Investors now believe a combination of these companies is highly probable within years. Tesla already supplies batteries and manufacturing technologies for SpaceX projects. The companies are also jointly developing a semiconductor manufacturing facility for AI chips. However, regulatory approvals and governance complexities present significant hurdles to any such transaction. Tesla CEO Elon Musk on Wednesday left the door open to the EV maker merging with his other trillion-dollar-plus-valued firm SpaceX, declining to dismiss the possibility and citing growing overlap between the companies. "As you can tell from the many collaborations ⁠on ⁠so many fronts with SpaceX, there's more and more overlap," Musk said on Tesla's earnings call. "We can't talk about, you know, combining companies and that kind of thing on an earnings call," he added. Also Read: Elon Musk breaks the $800 billion barrier after SpaceX-xAI mega merger "It's got to be done with the appropriate process." Investors and analysts have long speculated about the possibility of combining Musk's electric vehicle and space firms, with the discussion intensifying during SpaceX's record $75 billion initial public offering process. After Musk's comments, he called on Tesla General Counsel Brandon Ehrhart, who stuck to boilerplate language calling SpaceX a "great partner" that provides "numerous beneficial transactions." Gene ⁠Munster, managing partner at Tesla investor Deepwater Asset Management, said the call left him more convinced the companies were destined to be joined over the next few years. "I would put the odds ⁠that these two will combine at 90% today," he said in a video posted on social media. "If you were going to ask me yesterday I would have said it's 80%." Tesla already supplies batteries and manufacturing technologies for some SpaceX projects, while the companies are jointly developing Terafab, a semiconductor manufacturing facility designed to produce AI chips. Also Read: Elon Musk's SpaceX in merger talks with xAI ahead of planned IPO, source says Proponents argue that combining the companies could simplify Musk's corporate empire and create a more integrated company spanning artificial intelligence, robotics, manufacturing, energy and space infrastructure. JPMorgan analysts said this month that "operational integration between the two entities is already deep," citing shared engineering talent, AI infrastructure, Terafab and Musk's leadership as factors that "would facilitate an eventual combination." Stifel analysts struck an even more bullish note, writing that "many investors consider it inevitable that Musk will move to combine SpaceX with Tesla - for them the question ⁠is not if but when." SpaceX President and Chief Operating Officer Gwynne Shotwell has also acknowledged potential benefits, telling CNBC in June that folding the companies together "might make Elon's life a little easier" by streamlining management across his businesses. Others, however, caution that any transaction could face formidable hurdles. In the same research note, JPMorgan pointed to the "practical bottleneck" of getting regulatory approvals for both companies, particularly in China, where national security concerns over SpaceX's U.S. government ties could pose problems. Analysts also note that Musk controls a much larger voting stake in SpaceX than in Tesla, complicating governance considerations for Tesla's public shareholders.