Elon Musk opened talks of a potential merger of his two companies, SpaceX and Tesla, suggesting it would be "a good idea" and that they had formed special committees to discuss a union, sending shares of the space and technology company up 8% in extended trading.
SpaceX earlier posted its first profit as a public company, and Musk said he expected annual recurring revenue of between $500 billion and $1 trillion by the end of 2027, as demand for its data-center space surges thanks to the AI boom.
Musk has in the past tantalized shareholders with the idea of combining SpaceX and Tesla, citing growing overlap between them. Speculation about the space company buying the EV maker has gained traction recently, with Barclays suggesting last week that a deal could be announced before Tesla's annual meeting in December.
"I think it would be a good idea, but it's really up to the special committees of both companies," Musk said in the first official confirmation that the companies were formally talking.
"Because I'm a conflicted party, I can't actually be in the discussions of the special committees," which comprised independent directors, he told investors on a conference call.
The companies had formed the special committees at the request of shareholders, who ultimately would need to approve a deal, he added.
"I do think there's a lot of merit to combining the companies as we are pretty much in the superintelligence singularity, and there's a lot to be gained from cooperating on developing superintelligence software, chip design, the Terafab obviously, robotics, mass-to-orbit with the Starmind constellation, connectivity," he said.
Terafab, the chip manufacturing joint venture between the two companies, should produce its first test chip around May or June of next year and aims to reach volume production by the third quarter of 2028, Musk said on the call.
Musk added that it would be premature to assume a SpaceX-Tesla merger would happen, noting that the special committees had not agreed on transaction terms and may never do so. Tesla shares rose 1.8% in extended trading.
The world's richest person, Musk, owns nearly a fifth of Tesla and just under half of SpaceX, and analysts have said a merger would give him control of the combined entity.
The talks started in recent weeks and could result in SpaceX acquiring Tesla, a person familiar with the matter told Reuters, who declined to be named because they were not authorized to talk to the media.
Tesla has been working with an investment bank to advise on the discussions, the person said.
AI revenue drives SpaceX transformation
SpaceX's revenue climbed 161% to $14.58 billion for the three months ended Sept. 30 from a year earlier.
AI revenue surged by almost 10 times to $7.56 billion, mostly from renting out data-center capacity to developers such as Anthropic, Alphabet's Google and Reflection AI rather than from its own models.
The third quarter offered the clearest evidence yet that SpaceX’s heavy investment in AI is translating into revenue, even as spending on compute infrastructure remains enormous - capital expenses nearly tripled to $19.6 billion.
The shift is reshaping a company whose financial engine has long been its Starlink internet services business and whose longer-term ambitions still hinge on getting Starship rockets into regular service. For now, though, its main business looks closer to a cloud provider's than an AI lab's.
SpaceX's chief financial officer, Bret Johnsen, said the company expects $35 billion to $40 billion in capital expenditure in the fourth quarter.
"SpaceX delivered the quarter the bulls wanted, at least on the top line," said Will Rhind, CEO of asset manager GraniteShares. "The story now is all about AI. The compute contracts signed earlier this year are turning into revenue faster than a lot of people thought."
The company's AI business spans Grok, social media platform X and a fast-growing data-center operation. The business also turned a profit in the third quarter, compared with a year-ago loss.
SpaceX reported net income of $4.4 billion versus a net loss of $1.1 billion a year earlier and analysts' expectation for a profit of $1.57 billion. On a per-share, adjusted basis, it earned 45 cents according to IBES calculations, outstripping a 13-cent average estimate.
Starlink subscribers top forecasts
The satellite-internet unit has continued to expand its subscriber base, aided by additional satellite launches and a growing range of consumer, enterprise, aviation, maritime and government services.
Starlink reached 13.6 million subscribers in the third quarter, above the 12.19 million analysts expected, but growth is coming at a price: Average monthly revenue per subscriber has fallen from $99 in 2023 to $69 in the third quarter as it expands abroad with cheaper plans.
The company has said geographic expansion beyond the wealthiest countries could push average revenue per user lower over time.
Starship, SpaceX's next-generation reusable rocket system, has yet to enter commercial service. It is expected to enable deployment of higher-bandwidth Starlink satellites and orbital AI-computing infrastructure. The company's ability to turn Starship into a reliably reusable vehicle is central to its longer-term strategy.
The space segment includes commercial launches, government missions, and Starship development and remains a significant source of costs and uncertainty.