Why does Elon Musk want to merge Tesla and SpaceX?

ByOsmond Chia

Business reporter

Elon Musk has spent years building Tesla and SpaceX into a pair of trillion-dollar technology empires. Now, he is considering bringing them together.

Asked on Tuesday whether a merger would be a good idea, Musk was clear: "Yes."

The prospect is more than hypothetical. Musk said special committees have been formed to assess a potential deal, although he stressed that there is no guarantee a merger will happen and that nothing has been agreed.

With Tesla valued at roughly $1.5tn (£1.1bn) and SpaceX at $2tn (£1.5bn), a combination of the two companies would mark the largest merger ever.

Any deal would also need shareholder backing. But Musk said he saw "a lot to be gained" in bringing the businesses together.

How likely is the merger?

"In my opinion, 100%. It's just a question of when," says David Nicholson, the Chief Technology Advisor at The Futurum Group, a market research company.

The unveiling of the Tesla Roadster last week - a futuristic electric car powered by SpaceX rocket thrusters - served as a "symbolic embodiment" hinting at the two Musk companies merging, Nicholson said.

Musk, the CEO of both SpaceX and Tesla, said bringing the firms together would be beneficial given the work each does around chips, artificial intelligence (AI) and other technology projects.

Specifically, the deal would combine Tesla's cars, robots and self-driving technology with SpaceX's rockets, data centres, satellites and telecommunications operations.

The move could be a step towards Musk's mission to build a self-sustaining city on Mars - a vision that has invited sceptics but also plenty of backers.

Over the past year, Musk has moved to consolidate his businesses, with SpaceX acquiring xAI and X, formerly Twitter, before going public this year.

But the merger would ultimately be decided by shareholders, with half of Tesla's needed to back the deal, a threshold even Musk described as "quite a high hurdle". Musk, as CEO of both companies, cannot participate in shareholder discussions.

Even so, Musk, a key shareholder of Tesla, will likely get his way in the next few years, said investment analyst Dan Sheehan from Telos Wealth Advisors.

He believes shareholders will back the deal as the technology the companies develop complement each other, Sheehan said.

But the merger would mean that Tesla shareholders will likely hold a "smaller slice of a much larger and more complex business," he added.

"There's no real precedent for how a public company like Tesla gets priced in this," Sheehan said.

SpaceX shares rose 8% in after hours trading while shares of Tesla climbed by 1.5%.

What would it mean for customers?

Experts told the BBC that Tesla drivers are unlikely to see much drastic change in the near term, even if the two companies combine.

In fact, vehicles seem almost like "an afterthought", overshadowed by the potential to combine the Tesla and SpaceX's tech capabilities, Nicholson said.

Changes are already underway at Tesla. The carmaker said earlier this year that it would prioritise its best-selling Model Y and Model 3, shifting focus away from less popular models.

Tesla also started using a manufacturing plant in California to produce humanoid robots, known as Optimus.

Pairing Tesla's self-driving technology and robotics with SpaceX's AI and satellite network could result in more capable vehicles, Sheehan said.

"The question is how much priority cars get inside a company increasingly driven by AI infrastructure," he added.

The recent Roadster showcase suggests SpaceX technology could be pulled into future Tesla products, which could attract more customers, said Tu Le, the founder of advisory firm Sino Auto Insights.

The Cybertruck-maker faces intense competition from Chinese carmakers like BYD, which overtook Tesla as the world's biggest EV maker in January.

What does Musk get out of it?

The biggest winner is probably Musk - the world's richest man who also became the world's first trillionaire earlier this year.

The merger would give Musk greater voting control over the combined company than he currently has at Tesla, a factor the special committee assessing the deal would have to consider.

A single company makes it easier for Musk to run his AI strategy the way he wants, Sheehan said.

"The deal itself doesn't add to Musk's wealth, but it concentrates it further in one stock," he said.

However, the merger could attract scrutiny over Musk, already a polarising figure in the US, Nicholson said.

The move could also face more regulatory pressure if Democrats - many of whom have been critical of Musk - win more seats in the US midterm elections next month.

Shareholders have backed Musk's desires before. Last year, Tesla investors approved an unprecedented compensation package for Musk valued around $1tn.

"I honestly don't think Musk will be keeping track of what the merger will do for his wealth," Nicholson said.

The deal also brings Musk closer to what Nicholson says is "his mission in life": colonising Mars.