Why a SpaceX-Tesla Merger Could Benefit Shareholders in Both Companies
The Takeaway
- Merger could benefit shareholders by consolidating Musk’s focus.
- SpaceX and Tesla share similar valuations, easing potential merger.
- Combined entity faces significant cash burn and debt challenges.
In 2016, Elon Musk defended Tesla’s proposed acquisition of SolarCity, a solar energy firm co-founded and run by his first cousins, by calling it a “no-brainer.” As it turned out, the purported benefits of the $2.6 billion deal, which brought a cash-burning, debt-laden firm under the Tesla umbrella, never materialized, and SolarCity lost market share in the years that followed.
Observers of Musk today might worry he is on the precipice of facilitating another ill-fated union, this time of his two crown jewel companies, newly public rocket ship and satellite internet company SpaceX and electric vehicle maker Tesla. But that merger would be far more defensible than the SolarCity deal was at the time.
A merger would likely benefit shareholders of both firms by resolving some of the conflicts associated with Musk running them separately, and by easing intercompany dealings that already occur. Even so, there are risks around the capital-intensive expansion both companies are planning in the coming years.
The idea that SpaceX might buy Tesla gained steam two weeks ago on the company’s earnings call, after Musk coyly declined to answer a Wall Street analyst’s question about the prospect. While he acknowledged the increasing overlap between the two firms, including their planned joint venture to build a massive semiconductor fabrication plant known as Terafab, which Musk announced in March, he said a combination would need to go through an “appropriate process.”
A combined SpaceX-Tesla would have three main businesses, the largest of which would be Tesla’s automotive unit, which sells electric cars as well as services for those vehicles, such as maintenance and insurance. That segment generated $82 billion in revenue in 2025, 86% of Tesla’s top line. The rest of Tesla’s revenue comes from its fast-growing energy generation business, which includes solar panels and batteries.
SpaceX’s largest business is the Starlink satellite internet unit, which in 2025 generated $11.3 billion in revenue, 61% of SpaceX’s total that year. SpaceX is best known for its rocket-launching unit, which generated $4 billion in sales in 2025, and its xAI business, which houses social media platform X and the company’s AI data centers. Those centers are increasingly operating as a cloud firm. AI contributed 17% of SpaceX’s top line last year, although that’s likely to be higher now that SpaceX has started renting out its data center capacity to other companies. (SpaceX is also planning to buy coding firm Cursor for $60 billion, but the deal hasn’t yet closed.)
Musk promotes both companies by emphasizing his aspirations for them: He hopes to make Tesla a major manufacturer of humanoid robots as well as a robotaxi service provider. The company is still developing the robots, however, while its robotaxis are nascent and well behind those of industry leader Waymo. SpaceX’s future rests on getting its giant Starship rocket into commercial service, building data centers in space and traveling to the moon or Mars to build alternative civilizations.
Perhaps the most important benefit for investors in both companies is that a merger would unite two businesses run by the same person that already work together in various ways. Musk moves engineers and executives between his companies freely, and they share technology: For instance, Grok’s models, part of SpaceX’s xAI segment, are now available to Tesla drivers in their vehicles. A merger would resolve any concerns shareholders might have about the business dealings between the two companies and whether those deals are fair to both.
“If you are either a SpaceX or a Tesla investor, chances are you’re just a big believer in Elon, and no matter how you look at it, the other company is a major distraction for Elon from your perspective,” said investor Hamid Shojaee, who first bought Tesla stock in 2015 and cashed out after making a profit a few years ago. “The companies could benefit from being a single company that is run by Elon, with all of his focus being on the one as opposed to divided between the two.”
Ross Gerber, who helms wealth management firm Gerber Kawasaki and is a shareholder in both companies, said combining the different businesses would make it easier for them to buy and sell products and services to each other.
“So if I’m Tesla, I’m basically buying my compute from xAI, and as this gets more and more integrated into the car, essentially the entire operating system of the robots and the cars will be run by another company,” he said.
Big Believer
Then there’s valuation. A deal might have been more complicated in the days just after SpaceX first went public, when it reached a share price of $211, making its equity worth around $2.8 trillion—more than twice that of Tesla at the time, even though Tesla’s revenue last year was more than double SpaceX’s.
Since then, though, SpaceX stock has slid 15% from its initial public offering price, reducing its market capitalization to $1.5 trillion, just a little above Tesla, which is at roughly $1.3 trillion. Both companies are hugely overvalued, to be sure, but they currently trade at broadly similar forward price-to-earnings multiples, with SpaceX at 190 times and Tesla at 167 times, according to S&P Global Market Intelligence. That makes a combination easier than if only one was hugely overvalued.
Still, it is tough to nail down what kind of multiple is appropriate for each company individually, given the big unknowns each faces in future businesses such as Tesla’s hoped-for humanoid robot operation. At SpaceX, the future of the AI unit is especially unclear, while Starlink and its rocket launch business depend on SpaceX’s success in getting Starship into commercial service. The giant rocket is still in the testing phase.
SpaceX’s upcoming earnings report today will provide a fresh crop of data that could trigger movement in its share price, changing the financial logic of whether a deal makes sense. SpaceX is likely to be the acquirer, as Musk has supervoting shares in the rocket company—unlike with Tesla—which ensures he could maintain control of the combined company.
One big issue is that both companies are burning cash as they invest in new technology. While Tesla generated $6.2 billion in free cash flow in 2025, its free cash flow swung negative in the second quarter and will likely stay in that territory for the foreseeable future as the company invests heavily in robotaxi technology. Executives project Tesla will spend at least $25 billion in capital expenditures this year. There’s also the issue that SpaceX has nearly $7 billion in net debt, while Tesla has $27 billion, so a merger wouldn’t improve either company’s immediate cash position.
And the combined company would have enormous cash needs in the future, in areas like planned chip manufacturing and AI operations. “He’s building these massive data centers that will be worth a lot of money, but the problem with that is he’s got to invest, like, all of SpaceX’s capital into this because he’s competing with Amazon, Google and Microsoft,” Gerber said.
On the other hand, the larger combined companies might be more easily able to borrow money in the debt markets and at a lower interest rate, said one credit executive.
“It’s really a one plus one equals three scenario from a credit perspective, as the risk of default and loss given default are so low compared to other BBB-rated credits, which would generate significant demand,” said Prath Reddy, CEO of private credit marketplace Percent. “Not only would it be easy for them to raise debt, but oversubscribed demand would likely also secure favorable pricing.”
What Could Go Wrong
Still, there’s always the risk that those synergies aren’t substantial enough to offset the cash burn of the two companies as SpaceX doubles down on constructing data centers. There’s also a risk that geopolitics will torpedo the deal.
A report last week from The Wall Street Journal said Musk was instructing Tesla executives to prepare to separate its China business, heading off any potential regulatory hurdles that could throw a wrench in an eventual merger. Musk took to X to deny he was considering jettisoning the China business.
That denial may well be because for some investors, including Gerber, divesting from China would simply exact too steep a price. China contributed 18% of Tesla’s top line in the first half of 2026, and the country plays an important role in Tesla’s supply chain, housing some of its most productive, lowest-cost factories.
Divesting the China unit “guts the heart of Tesla’s revenue-profit engine,” Gerber said.
If that outcome can be avoided, though, a tie-up looks pretty attractive, if for no other reason than to consolidate Musk’s attention and effort on one entity in which investors share both risk and upside.