After the SpaceX IPO is launched, Elon Musk will be the CEO and largest shareholder in two publicly traded companies valued at over $1 trillion. Musk has said he sees SpaceX and Tesla TSLA converging, raising speculation of a merger. Among the questions we tackle from the vantage point of Morningstar equity research:

  • Would a SpaceX/Tesla merger make sense and when would it happen?
  • What could prevent a merger?
  • What would the combined company look like?
  • What kind of merger deal would Tesla shareholders likely accept?

Here’s a close look at the potential for a SpaceX-Tesla merger:

How tight is the relationship between SpaceX and Tesla?

  • Tesla ss mentioned 87 times in the latest SpaceX S-1 filing ahead of the IPO.
  • Elon Musk is CEO and a director or chairman at both companies. He is the largest shareholder of both companies, owning 13% of Tesla shares, and he could exercise options to own up to 20% today. We estimate he will own 49% of SpaceX shares with control over 84% of SpaceX’s shareholder votes after its IPO.
  • Tesla invested $2 billion in xAI before SpaceX bought that company, and it now holds a less than 1% financial stake in SpaceX (around 19 million shares).
  • SpaceX buys products from Tesla, such as $506 million worth of Tesla Megapack power cells and $130 million worth of Cybertrucks for SpaceX facilities in 2025.
  • The two firms and Intel are partnering on Terafab to design, build, and scale up a new set of AI microchips for use in Tesla’s Optimus robots and trucks, as well as SpaceX’s planned orbital data centers.
  • The two firms are developing what they call the Macrohard agentic platform, which we understand to mean creating an AI agent that can autonomously operate a computer the way a human can.

A few more connections exist, but these aren’t as relevant to thinking about the rationale or consequences of a merger or other combination of SpaceX and Tesla:

  • SpaceX launched a red Tesla Roadster into space in 2018.
  • Ira Ehrenpreis is a director at both companies.
  • SpaceX directors Antonio Gracias and Steve Jurvetson are former Tesla directors.
  • Musk settled securities fraud charges brought by the SEC for tweeting about taking Tesla private in 2018.
  • Tesla advertises on X.
  • Musk uses SpaceX aircraft while performing Tesla management duties, and the companies pay rent and fees to each other for these arrangements.

Why would a SpaceX-Tesla merger make sense?

We see a solid business case for a merger or some other legal transaction structure combining the two companies. Since Tesla and SpaceX are both investing heavily in artificial intelligence and building an AI supply chain, we see the potential for the two to become increasingly intertwined in the coming years.

For example, Tesla’s full self-driving software for passenger vehicles and robotaxis will use SpaceX’s Grok as its AI system to interact with consumers. The same platform would also likely create the interface for Tesla’s Optimus to interact with humans. We also see the potential for robotaxi to use Starlink for connectivity. Tesla is already a large supplier for SpaceX, selling batteries, solar panels, and potentially cargo casings to fit SpaceX’s Starship.

Further, the companies have a joint venture with Intel to develop semiconductors specialized for AI computing, and Tesla would likely be a key partner in the development of orbital data centers, a key long-term project for SpaceX.

The most important additional reason a merger makes sense is that Tesla and SpaceX CEO Elon Musk wants to consolidate his companies into one conglomerate. This would allow him to run all their operations under one roof without tripping on as many governance issues. For example, Musk could move Tesla software developers or engineers to work on SpaceX AI projects, and vice versa, or have Tesla and SpaceX supply one another without the need for related party transaction disclosures or risking shareholder lawsuits claiming the resources of one firm are being diverted for the benefit of the other.

Why wouldn’t a merger make sense? What could prevent it?

While we see the two companies working together on multiple projects, they presently have different long-term goals. Tesla aims to transition its business from primarily selling autos and batteries to selling autonomous driving software (for both Tesla owners and robotaxi customers) and humanoid robots. Though SpaceX could help Tesla with xAI and Starlink, the same outcomes could be achieved with joint ventures.

In the immediate term, SpaceX’s goals are to continue scaling its launch capability with its Starship rocket, adding Starlink capacity by launching hundreds of satellites, and commercializing Grok AI and the Colossus data center. The biggest project we see on the near-term horizon, and one of the reasons SpaceX is conducting an IPO, is to raise money to invest in developing orbital AI computing clusters, which may or may not work out. While Tesla will be a key supplier for orbital data centers, we think SpaceX could achieve the same outcome with a joint venture or a more traditional OEM/supplier relationship.

In its IPO registration filing, SpaceX lists a myriad of lofty long-term goals beyond developing its own semiconductors and the other projects it is already working on with Tesla, which we think could be successful if formalized as joint ventures. SpaceX’s stated mission is to enable humanity to become an interplanetary civilization by developing the necessary hardware, infrastructure, and supply chains.

Admittedly, the companies’ long-term goals could be described as converging, at least over a sufficiently long horizon, which would form another argument in favor of their combination.

Regulatory concerns could also prevent or constrain a merger. SpaceX is a large US government and military contractor, while Tesla has major auto and battery operations in China. This could raise scrutiny from US regulators, related to national security concerns in the company’s supply chain.

What kind of deal would we expect for such a merger, and why?

Ultimately, if a merger occurred, both firms’ shareholders would have to agree to terms. While we assume both groups believe in Elon Musk’s vision for the future and his ability to steer the companies toward it, we think the ratio of each company’s shareholder ownership in the combined entity may prove tricky enough to negotiate that it could prevent a deal from moving forward.

Even though Musk is the primary shareholder of both companies, we think enough Tesla shareholders could hold out for some key terms to alter the dimensions of a combination. They could be reluctant to accept a deal that assigns an enterprise value for Tesla below SpaceX’s. SpaceX’s IPO offering price of $135 per share implies a market capitalization near $1.8 trillion, 20% higher than Tesla’s at $1.5 trillion. But SpaceX’s valuation was just $400 billion last July, before it acquired Musk’s AI business, in a deal that valued SpaceX at around $1 trillion and the AI business around $250 billion. With SpaceX’s soaring valuation leading up to its IPO, we doubt Tesla shareholders would want to buy SpaceX while its valuation multiples are far higher than theirs.

These multiples imply SpaceX has a lot more growth priced into its valuation despite the firm generating negative free cash flow at the moment. While Tesla shareholders are typically willing to take a long-term view with Musk’s ability to execute his vision, they have also become accustomed to Tesla generating positive free cash flow and mostly self-funding its growth in recent years. Tesla shareholders may be wary that a SpaceX merger would entail more equity raises, diluting all shareholders, in the coming years.

Further, given the very small initial float of SpaceX’s shares, we think Tesla shareholders and its board of directors may want to be compensated for Tesla’s stock offering with far more liquidity in any deal structure. Ultimately, we think Tesla shareholders may agree to a deal that gives Tesla at least 50% of the combined company, but they may want even more control. Using our fair value estimates, we get to a 66%-34% Tesla/SpaceX equity ratio, so we expect Tesla shareholders may agree to 50%-66% of the combined company.

Though we expect some Tesla shareholders will also be keen owners of SpaceX stock, new public owners of SpaceX stock would likely not agree to such a steep discount to the IPO price unless SpaceX shares fell closer to our $63 per share fair value estimate.

When will we find out whether a SpaceX/Tesla merger is likely?

Media reports have said Tesla and SpaceX are discussing a merger, but nothing has been announced. Once SpaceX’s initial public offering is completed (due June 12), the market will begin setting the company’s share price and market capitalization, which would help the Tesla board of directors evaluate what a fair price for their potential merger would be. Given that Musk-led companies tend to move quickly, we wouldn’t be surprised to see a deal occur within a year of the SpaceX IPO.