In 2016, Elon Musk pushed for Tesla to acquire solar energy company SolarCity, which was co-founded and operated by his cousins. At the time, Musk called the deal an "obvious smart choice." The outcome was far from that: the $2.6 billion transaction brought in a cash-burning, heavily indebted business, with promised synergies never materializing, and SolarCity continued to lose market share in the years that followed.
Now, market watchers focused on Musk fear he may push for another unpredictable corporate merger, this time involving his two flagship ventures: newly public rocket and satellite internet company SpaceX, and electric vehicle maker Tesla Motors. However, compared to the SolarCity acquisition, the logic behind merging these two companies is more compelling.
A merger could benefit shareholders of both companies by resolving various conflicts of interest arising from Musk managing them separately, while streamlining existing cross-company business dealings. Yet, the risks remain, as both companies plan heavy capital expansion in the coming years.
Two weeks ago, rumors of SpaceX acquiring Tesla Motors intensified during a SpaceX earnings call. When asked by Wall Street analysts about the possibility of a merger, Musk did not give a direct answer, remaining vague. He acknowledged the growing overlap in their businesses, including plans to jointly build a massive semiconductor factory called Terafab (announced by Musk in March), but stated that a merger would require a "compliant and complete process."
The combined entity of SpaceX and Tesla Motors would have three core businesses, with the largest being Tesla Motors' automotive segment, covering electric vehicle sales, maintenance, and insurance services. In 2025, this segment generated $82 billion in revenue, accounting for 86% of Tesla Motors' total. The rest of Tesla Motors' revenue comes from its fast-growing energy business, including solar panels and energy storage batteries.
SpaceX's largest business segment is Starlink satellite internet, which generated $11.3 billion in revenue in 2025, representing 61% of the company's annual total. SpaceX's most well-known rocket launch business contributed $4 billion in revenue in 2025. Additionally, there is the xAI business segment, which includes social platform X and an AI data center, with the latter gradually transitioning into a cloud service provider. Last year, AI business accounted for 17% of SpaceX's revenue, and this share is likely to rise as SpaceX leases out computing power. (SpaceX also plans to acquire code development company Cursor for $60 billion, though the deal has not yet closed.)
Musk has consistently outlined long-term blueprints for both companies: Tesla Motors aims to become a core manufacturer of humanoid robots and a provider of autonomous taxi services. Currently, humanoid robots are still in the development stage, and the autonomous taxi business is in its early phases, significantly lagging behind industry leader Waymo. SpaceX's future relies on the commercial operation of its massive Starship rocket, the construction of space data centers, and landing on the Moon and Mars to establish human settlements.
The most significant benefit for investors in both companies is that a merger would integrate businesses already under Musk's control and collaborating on multiple fronts. Musk has long freely transferred engineers and executives between the two companies, sharing technology. For example, the Grok large language model, part of SpaceX's xAI segment, is now available for Tesla Motors owners to use in their vehicles. A merger would also alleviate shareholder concerns about the fairness of transaction terms between the two companies.
Investor Hamid Shojaee, who first bought Tesla Motors stock in 2015 and sold out profitably a few years later, said, "Whether you're an investor in SpaceX or Tesla Motors, you're essentially betting on Elon. From your perspective, the other company distracts him significantly. Merging the two companies would allow Elon to focus entirely on a single entity, without splitting his attention."
Ross Gerber, head of asset management firm Gerber Kawasaki, holds shares in both companies. He believes that after a business merger, internal purchases and sales of products and services between the two would be smoother.
"For example, Tesla Motors could directly purchase computing power from xAI. Once computing power is deeply integrated into vehicles, the entire operating system for robots and vehicles would rely on this system," Gerber said.
A merger is feasible from a valuation perspective. When SpaceX first went public, its stock price briefly touched $211, giving it an equity valuation of about $2.8 trillion, more than double Tesla Motors' market cap at the time, even though Tesla Motors' annual revenue was twice that of SpaceX. A merger would have been extremely difficult then.
Now, SpaceX's stock price has fallen 15% from its IPO price, bringing its market cap down to $1.5 trillion, slightly above Tesla Motors' $1.3 trillion market cap. Both valuations remain high, but according to S&P Global Market Intelligence data, their forward price-to-earnings ratios are converging: SpaceX at about 190 times, and Tesla Motors at about 167 times. If only one company had a severely inflated valuation, merger negotiations would be trickier. The similar valuations improve the feasibility of a deal.
However, both companies face significant business uncertainties, making it difficult to precisely calculate a reasonable valuation range. Tesla Motors' humanoid robot business outlook is unknown; SpaceX's AI segment development path is unclear, and its Starlink and rocket launch businesses heavily depend on the successful commercial deployment of Starship, which is still in testing stages.
SpaceX is set to release its latest earnings report today, and new operational data could trigger stock price volatility, potentially altering the financial feasibility of this merger. Likely, SpaceX would be the acquirer: Musk holds super-voting shares in SpaceX (a structure not present in Tesla Motors), allowing him to maintain control of the combined group.
A major practical challenge: both companies are continuously investing in new technologies, straining their cash flows. Tesla Motors generated $6.2 billion in free cash flow in 2025, but free cash flow turned negative in the second quarter. The company is heavily investing in autonomous taxi development, making it difficult for cash flow to turn positive in the near term. Management expects Tesla Motors' capital expenditure to be at least $25 billion this year. In terms of debt, SpaceX has nearly $7 billion in net debt, while Tesla Motors has $27 billion in liabilities. A merger would not immediately improve the short-term cash positions of either company.
The combined entity would also need to continue heavy investment in chip manufacturing and AI infrastructure projects.
Gerber noted, "He's building massive data centers with great long-term value, but the real challenge is that SpaceX almost has to pour all its cash into this space, facing fierce competition from Amazon, Google, and Microsoft."
However, a credit industry executive offered a positive perspective: a larger merged group could more easily access bond markets at lower interest rates.
Prash Reddy, CEO of private credit platform Percent, said, "From a credit perspective, it could be a case of 1+1>3. Compared to other BBB-rated entities, this merged company would have lower default probability and loss severity, attracting significant capital. Not only would financing become easier, but oversubscription could further reduce borrowing costs."
Potential risks do exist: SpaceX's massive spending on data centers will consume significant cash, and if synergies fail to meet expectations, it may not be able to sustain the burn. Geopolitical factors could also directly block the deal.
The Wall Street Journal reported last week that Musk instructed Tesla Motors management to prepare for splitting its China operations, clearing potential regulatory hurdles for a merger. Musk later denied plans to divest the China business on X platform.
This denial is understandable. Many investors, including Gerber, believe the cost of divesting China operations would be unbearable. In the first half of 2026, the Chinese market contributed 18% of Tesla Motors' total revenue. China also plays a key role in the supply chain, hosting multiple factories with the highest output and lowest costs for Tesla Motors.
Gerber commented, "Divesting China operations would essentially destroy the core engine of Tesla Motors' revenue and profit."
If this worst-case scenario can be avoided, the merger plan is significantly attractive, allowing Musk to focus all his energy on operating a single group, with all investors sharing risks and upside collectively.
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