SpaceX and Tesla boards study potential record merger, Musk says

The boards of SpaceX and Tesla have each formed special committees of independent directors to study a combination, Elon Musk said Tuesday on a conference call after SpaceX's earnings. Bloomberg reported that the deal would be the biggest corporate merger ever, uniting electric cars, AI data centers, rockets and satellites under one roof, The companies’ current valuations add up to roughly $3.5 trillion, though neither committee has settled on terms..

"There's a lot of merit to combining the companies," Musk said. Let us pause and admire the scale of that sentence.

Two giants, one very interested man

SpaceX is valued at more than $2 trillion. Tesla has a market value of about $1.5 trillion. Put them side by side and you get roughly $3.5 trillion, though the reporting says neither committee has settled on terms, so treat that as arithmetic, not a price tag.

Musk was careful about his own role. He said the idea would be good but that "it's really up to the special committees of both companies," adding he can't be part of the discussions because he's a conflicted party. He is CEO of both companies and the largest individual shareholder of both. He also said the committees were created at the request of shareholders. Asked about the prospects, he first said he was "tap dancing through a minefield."

Gene Munster of Deepwater Asset Management, which has invested in both companies, was less coy. "There's no question that Musk wants the merger, and he wants to get it done sooner rather than later," he said.

The market noticed. SpaceX closed at $147.79, about 10% above its $135 IPO price from June, the offering that raised $86 billion at a $2 trillion valuation and was the largest IPO ever. Tesla, even with the bump, is still down 17% this year.

The SI engine room

The earnings gave the committees plenty to read. SpaceX posted $4.4 billion in net income for the quarter ended in September, against an analyst average projection of $1.88 billion. Revenue rose 161% from a year ago and also beat expectations.

The star of the show is the AI business, which now goes by Super Intelligence, or SI. Its quarterly revenue hit $7.56 billion, more than nine times the year-earlier figure, with $431 million in operating income, up from a $1.7 billion operating loss a year ago. SpaceX has become a major compute and infrastructure supplier to Anthropic PBC and Alphabet Inc., and it acquired the coding-tool developer Cursor in August. Musk has already rolled X and xAI into SpaceX.

The rest of the portfolio is a mixed picture:

• Starlink subscribers reached 13.6 million, short of what analysts expected, yet connectivity revenue still rose 69% to $5.25 billion.
• The launch and spacecraft unit grew just 6%, to $1.77 billion.
• Starship's 15th test flight is planned for next month, with an attempt to catch both the booster and the ship. President Gwynne Shotwell said an on-orbit refueling demonstration is expected early next year.

Then there is the spending. Capital expenditure came in at $19.6 billion, up from $18.4 billion the prior quarter, mostly on data centers and chips. Musk said it would climb to between $35 billion and $40 billion in the fourth quarter. SpaceX had 1.7 gigawatts of installed computing capacity at the end of September across its Colossus data centers, and Musk said he would be "surprised" if it did not have 13GW by the end of next year, with a "small, non-zero possibility" of 20GW.

CFO Bret Johnsen said revenue in the first quarter of next year could reach as much as $37 billion and that "a number of available pools of debt capital" are in talks. In March, Musk also announced Terafab, a Texas chip plant joint venture that could ultimately cost $119 billion, to make chips for autonomous vehicles, humanoid robots and orbital AI data centers.

What it means, and what to watch

The attraction is easy to imagine: electric cars, rockets, satellites and a very hungry SI operation under one corporate roof. How that combination would be financed remains unspecified. Tesla would bring a market value of about $1.5 trillion to a company that reported $19.6 billion in third-quarter capital expenditure, mostly on data centers and chips, and forecasts $35 billion–$40 billion in total fourth-quarter capex..

The obstacle is the vote. Musk holds more than 50% voting power at SpaceX, which makes shareholder support easier there. At Tesla the company would need a 50% vote from all shareholders, not just those who vote, Musk noted, and he cautioned that getting enough support may be tricky.

Three things to watch:

• Terms. The reporting gives no exchange ratio or financial structure, and what the committees propose is unknown.
• Tesla's vote. Whether holders of half of all outstanding shares will say yes is a major hurdle.
• open question.

Independent committees, a $3.5 trillion headline, a Starship catch attempt planned for next month. History is being drafted in real time, and the committees have the pen.