It's Musk's market, and we're just living in it

Just last week, Elon Musk unveiled a flying car that he claimed could accelerate from zero to 60 mph in less than a second and add a flip to the mix. When AI scientist Yann LeCun questioned the physics behind the stunt, Musk offered a sophisticated rebuttal: “I fart in your general direction.”

But Musk might soon have better than a Monty Python quip. During yesterday’s SpaceX earnings call, he said merging Tesla with his rocket company was a “good idea,” one that could bring engineering expertise behind both cars and rockets under one roof in a $3.5 trillion deal. Both companies have established independent committees to explore the possibility.

“There’s a lot to be gained from cooperating,” Musk said. The companies already collaborate on Terafab, a chipmaking project intended to power Tesla’s autonomous vehicles and robots alongside SpaceX’s AI operations.

There’s a financial incentive, too: SpaceX isn’t expected to generate positive free cash flow until 2031, so access to Tesla’s financial resources could help fund its ambitions. That said, the rocket maker did report pretty stellar earnings yesterday:

• Revenue soared 161% year-over-year to $14.6 billion, beating expectations of $12.7 billion.
• AI business generated $7.56 billion, more than half of total revenue and over nine times its year-earlier figure.
• Net income hit $4.4 billion, reversing a $1.1 billion loss a year earlier.

But the company also spent $19.6 billion on quarterly capital expenditures, more than its total revenue. Nonetheless, SpaceX shares jumped 7.79% today, while Tesla gained 3.41%.

A rocky road to orbit

Musk has tried bringing two of his businesses under one roof before, and it wasn’t exactly smooth sailing.

In 2016, Tesla acquired solar-panel maker SolarCity for $2.6 billion, sparking shareholder lawsuits alleging that Musk used the automaker to rescue a struggling company he held a major stake in.

While Musk ultimately prevailed in court, a merger could revive similar concerns: Musk owns roughly 48% of SpaceX but just 20% of Tesla—potentially giving him an incentive to use Tesla’s funds to underwrite SpaceX’s ambitions, while leaving Tesla shareholders to shoulder the risk.

JPMorgan Chase analyst Rajat Gupta expects those shareholders to demand a 30% to 35% premium on their shares, which could complicate negotiations with SpaceX investors. But while shareholders haggle over who gets what, Musk would be the biggest winner: Gupta estimates that the premium deal could give him more than 50% of the combined company’s voting rights.

The bigger obstacle may be China. SpaceX’s sensitive US defense contracts could clash with Tesla’s extensive Chinese operations, potentially complicating regulatory approval. Still, there’s reason for optimism, with both companies already sharing engineers, AI infrastructure, and Musk’s idiosyncratic leadership.

Investors may get more clues when Tesla reports earnings today, and decide whether Musk’s latest moonshot can get off the ground.—SY