Musk says SpaceX-Tesla merger has "a lot of merit." Here's why.

Elon Musk on Tuesday said SpaceX and Tesla are exploring a merger — a business combination that one Wall Street analyst said could be worth nearly $5 trillion, which would make it the largest deal in corporate history. 

"Both SpaceX and Tesla have formed special committees to discuss this idea at the request of shareholders, and these special committees consist of independent directors," Musk said during SpaceX's earnings call with investors, adding that he sees "a lot of merit to combining the companies."

Tesla's stock price rose $14.01, or 3.8%, to $387.72, while SpaceX shares jumped $14.62, or 9.9%, to $162.41 in morning trading. Here's what to know about a possible merger between the companies. 

How big would a SpaceX-Tesla merger be? 

The merger would likely be valued at close to $5 trillion, Dan Ives, partner and senior managing director at investment firm Yorkville Ives & Co., told CBS News. 

SpaceX is currently valued at $1.98 trillion, while Tesla's market capitalization stands at about $1.5 trillion. But Tesla shareholders would likely demand a premium for their shares to agree to the merger, Ives noted.

"For the merger to get passed by shareholders, it would have to be a higher price for Tesla — likely in the $500/$550 per share range in our view," he said.

That would make the combined company one of the most valuable in the world, rivaling that of the most highly valued businesses like chipmaker Nvidia, worth $5.2 trillion, or Apple, valued at $4.95 trillion.

What is the strategic rationale for merging the companies?

The main reason for combining SpaceX, a space exploration and AI company, with an electric vehicle manufacturer is to position them for a future in which artificial intelligence, or what Musk terms "super intelligence," becomes increasingly essential to everyday life.

"There's a lot to be gained from cooperating on developing super intelligence software, chip design, the Terafab obviously, robotics, mass to orbit with the Starmind constellation," Musk said in Tuesday's earnings call. 

While Tesla's primary business remains manufacturing EVs, Musk has signaled that the company is shifting away from traditional motor vehicles. In January, the Tesla CEO said the company would phase out production of its Model S and Model X vehicles.

Instead, the company is changing course to focus on developing autonomous products, such as self-driving taxis and humanoid robots. Musk said Tesla will eventually produce 1 million humanoid robots a year as the company transitions to an "autonomous future." The humanoid robot, called Optimus, could hit the market in 2027, Musk said in January.

AI is essential to Optimus, allowing it to follow orders and take on various tasks, as well as to Tesla's push into self-driving robotaxis.

Meanwhile, SpaceX owns xAI, Musk's AI unit that created Grok, the chatbot that is used in the social media app X and other Musk-owned products. Musk's planned Terafab chip factory will tie all the businesses together by manufacturing semiconductors for both SpaceX and Tesla.

Combining the businesses makes sense for a "number of strategic AI and data-driven reasons, and this is the right move for Musk," Ives said in a research note.

What are the hurdles to a merger?

On Tuesday's conference call, Musk underlined that a merger of SpaceX and Tesla is far from assured, noting that a majority of Tesla shareholders would need to vote in favor of the combination.

"I think some people out there assume that a SpaceX and Tesla merger is a certainty, and I think that would be overstating it," he said. 

Musk added, "At the end of the day, the shareholders have to be supportive of this, and particularly on the Tesla side, we will need a 50% vote of all shares, not just those who vote, but of all shareholders. And that's quite a high hurdle to try to achieve."

Even so, Ives assigns an 80% to 90% chance that the merger will happen by the end of 2027.