Tesla, the electric-vehicle maker led by Elon Musk, and aerospace company SpaceX have begun formal discussions on a merger. Their combined valuation would reach about $3.5 trillion, or roughly 4,636 trillion won. A completed deal would create one of the world's largest technology companies, spanning electric vehicles, space rockets, artificial intelligence chips, data centers and humanoid robots.
The talks are expected to have a significant impact on South Korean retail investors who hold Tesla shares. If existing Tesla stock is exchanged for SpaceX shares or stock in a newly created entity, investors could face capital gains tax even without selling any shares themselves.
Musk said at SpaceX's earnings presentation a day earlier that the two companies had each set up a special committee of independent directors to review a possible merger, Bloomberg reported on the 21st.
"There are significant benefits to combining the two companies," Musk said. "But because I am the chief executive and a major shareholder of both, I am not personally taking part in the negotiations, to avoid a conflict of interest."
Musk also stressed that nothing has been decided. The special committees have not agreed on specific terms, and shareholder approval would be required.
The main driver behind the push is AI. Tesla is transforming from a carmaker into an AI company developing self-driving vehicles and humanoid robots. SpaceX is expanding beyond satellite internet into space-based data centers and AI computing.
SpaceX secured AI as a core growth engine in February, when it acquired xAI, Musk's AI company. Bloomberg reported that AI is expected to become SpaceX's largest source of revenue this year.
Tesla and SpaceX Are Already Each Other's Customers
The two companies are already closely linked commercially. SpaceX has purchased more than $1 billion, or about 1.33 trillion won, worth of Tesla's large-scale energy storage systems to run AI data centers, along with more than $100 million, or about 133 billion won, worth of Tesla's Cybertruck electric pickup.
A jointly pursued semiconductor plant called Terafab is another prominent example of their cooperation. Musk plans to build a chip factory in Texas to produce in-house the semiconductors needed for Tesla's self-driving cars and robots and for SpaceX's space-based AI satellites.
If the merger goes through, Musk would be able to pursue AI chip production, data center operations, AI software development, and the manufacturing of self-driving cars and robots all within a single company. It could also make it easier to raise the vast sums needed for AI development and to share technology and personnel.
The deal could also tighten Musk's grip on the companies. He currently holds about 48% of SpaceX but wields more than 80% of the voting power thanks to a dual-class share structure. His stake in Tesla, by contrast, is about 20%.
British investment bank Barclays estimated that if SpaceX acquires Tesla, Musk could secure about 37% of the combined company's shares and 56% of its voting rights. The outcome would depend on the actual structure of the deal, but it suggests his control over both companies could grow stronger.
Tesla Shareholder Approval Needed; Tax Bill Hinges on Deal Structure
Significant obstacles remain. Tesla shareholders must approve the deal first. They are focused on the ratio at which their shares would be swapped for SpaceX stock and how large a stake they would hold in the combined company.
Regulatory issues in the United States and China are another variable. SpaceX is a major defense contractor for the U.S. government and faces strict national security rules. Tesla, meanwhile, produces about half of its global vehicle output at Chinese plants.
Both governments could raise objections to a structure in which a U.S. defense contractor manages large-scale production facilities in China along with vehicle operating data. Some observers say Tesla's China business may need to be separated for the merger to proceed.
Korean investors are focused on the capital gains tax that could arise during the share exchange. Investors in overseas stocks generally pay a 22% rate, including local income tax, on annual capital gains after a basic deduction of 2.5 million won.
The issue is that, depending on how the merger is structured, swapping existing shares for stock in another company can be treated as a transfer under tax law even without an actual sale.
For example, if Tesla shares were acquired for 20 million won and are valued at 100 million won at the time of the merger, the calculation would show a gain of 80 million won. Assuming no gains or losses on other stocks and full use of the 2.5 million won deduction, the tax would come to about 17.05 million won.
That means an investor who receives only new shares and no cash could still be forced to sell part of their holdings to pay the tax. Calls have been raised in Korea to introduce a tax deferral system that would postpone taxation on share swaps from overseas corporate mergers until the shares are actually sold.
Not every merger triggers capital gains tax, however. The tax outcome can differ depending on whether existing Tesla shares remain intact, are exchanged for SpaceX stock, or are replaced with shares in a new holding company. Neither the merger structure nor the exchange ratio has been determined.
Bloomberg said the deal would likely be the largest corporate combination ever if completed. Musk, however, drew a line at treating the merger as a foregone conclusion.
Ultimately, the outcome will depend not only on growth prospects from integrating the AI businesses but also on how the merger ratio, dilution of existing shareholders, government regulation and tax questions are resolved.
Questions and Answers on the Tesla-SpaceX Merger
Q. Why would Tesla, a carmaker, merge with SpaceX, a space company?
A. The common denominator is AI. Tesla applies AI to self-driving cars and humanoid robots, while SpaceX uses it in satellite and data center operations.
Tesla could supply AI chips it designs to SpaceX's space-based data centers, for instance, while SpaceX's satellite communications network could be used in Tesla's self-driving system. Musk's reasoning is that technology, facilities and capital can be used more efficiently together than separately.
Q. How large would the combined company be?
A. As of mid-October, SpaceX was valued at about $2 trillion and Tesla at about $1.5 trillion. A simple sum of $3.5 trillion would put the combined entity on par with global technology companies such as Nvidia and Apple. That figure is only the sum of the two valuations, however, and may differ from the actual deal value or the combined company's market capitalization after a merger.
Q. What happens to Tesla shares in a merger?
A. It depends on the structure. If SpaceX acquires Tesla through a share exchange, Tesla shareholders could receive SpaceX stock at a set ratio in place of their existing shares.
If the terms were set at 0.7 SpaceX shares per Tesla share, for example, an investor holding 100 Tesla shares would receive 70 SpaceX shares. That is only an assumption used to illustrate the structure, not a confirmed ratio. How much of a control premium Tesla shareholders are credited with is also an important question.
Q. Would a merger automatically benefit Tesla shareholders?
A. Not necessarily. The combined company's value could rise, but depending on the exchange ratio, existing Tesla shareholders could end up with a smaller stake in the merged entity. The higher SpaceX is valued relative to Tesla, the smaller the share of the combined company allotted to Tesla holders. The business benefits created by a merger and the economic benefits to shareholders need to be assessed separately.
Q. Would Korean investors owe capital gains tax even without selling their Tesla shares?
A. Possibly. If SpaceX acquires Tesla in a structure that cancels existing Tesla shares and issues new ones, the transaction could be treated as a share transfer under Korean tax law. Annual taxable gains on overseas stocks are subject to a basic deduction of 2.5 million won, and a 22% rate including local income tax generally applies to U.S.-listed shares. But because the merger structure has not been finalized, it cannot be concluded at this stage that every Tesla shareholder would face the tax.
Q. Is there any way to avoid or delay the tax?
A. The main issue is not avoiding the tax but deferring it — pushing back when it must be paid.
In February, a petition was filed with the National Assembly asking that share swaps arising from overseas corporate mergers not be taxed until the shares are actually sold.
Whether a deferral provision applicable to a Tesla-SpaceX merger has actually been adopted requires separate confirmation. If a merger materializes, investors will need to check the finalized deal structure, the National Tax Service's official interpretation, and how brokerages handle the share exchange.
Q. Does Musk have the most influence over whether the merger happens?
A. At SpaceX, effectively yes, because he controls more than 80% of the voting rights. Tesla is a different matter. A Tesla merger requires approval from a majority of all shareholders, and his stake alone is not enough to carry it. How Tesla investors assess the merger ratio and the expected benefits will be a key variable.
Q. What is the biggest obstacle to completing the deal?
A. Shareholder approval and regulatory review in the United States and China. SpaceX is a major U.S. defense contractor, and Tesla operates large plants in China. Combining the two could create a complicated tangle involving the management of U.S. military and space technology alongside production facilities and customer data in China.
That is why separating Tesla's China business has even been raised as an option. No specific separation plan has been finalized or officially announced, however.
Q. When will the merger be decided?
A. No timeline has been set. The two special committees are at an early stage of reviewing terms, and key items such as the exchange ratio, the acquiring entity and the timing of shareholder meetings remain undecided. Musk himself has said the merger is not certain to happen. Investors therefore need to watch for the merger agreement, exchange ratio and shareholder approval process to be disclosed, rather than focusing on the merger talk itself.
