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Elon Musk’s companies may be preparing for their biggest crossover yet.
SpaceX and Tesla have formed separate committees of independent directors to explore a possible merger. Musk, who runs both companies and owns large stakes in them, believes combining the two would be a “good idea”.
No deal has been agreed. Musk is not participating directly in the discussions because he sits on both sides of the table. The committees must now decide whether a merger makes financial and strategic sense for shareholders.
The how: there are several possible routes, but the most likely structure would involve one company buying the other using shares instead of cash.
Since SpaceX is reportedly worth more than Tesla, SpaceX could become the main company and offer its shares to Tesla investors. Another option would be to create a completely new parent company that owns both businesses.
Either way, deciding the share-exchange ratio would be messy.
Tesla is likely to be the harder side of the transaction. Musk said the deal would need support from at least 50% of all Tesla shares, not merely 50% of the investors who turn up and vote.
That is a very high hurdle because shareholders who do not vote effectively make it more difficult to cross the required mark.
The why: on the surface, electric cars and rockets have little in common. Look deeper, and Musk sees the two companies as pieces of the same technology machine.
- Tesla needs AI to power self-driving vehicles and humanoid robots. SpaceX is building large computing systems and already rents computing power to other AI companies.
- Both companies require powerful, specialised chips. Developing some technology together could reduce duplication and speed up production.
- Tesla is developing its Optimus humanoid robot, while SpaceX needs automation for factories, launch sites and possible operations in space.
- Starlink’s satellite network could provide internet connections to Tesla vehicles, robots and other devices almost anywhere.
Tesla investors could end up helping finance extremely expensive space and AI projects. SpaceX investors would inherit Tesla’s exposure to the competitive car industry, manufacturing problems and demand cycles.
