Exterior of the Tesla Motors headquarters building in Palo Alto with a Tesla sign, 2010

Tesla and SpaceX Form Committees to Weigh a Merger. The Stakes Reach Tesla’s Palo Alto Engineering Base

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Top image: Tesla Motors’ headquarters building in Palo Alto, photographed in 2010. Photo: Tumbenhaur / CC BY-SA 3.0 via Wikimedia Commons

The two largest companies controlled by Elon Musk have taken the first formal step toward a possible combination. Musk said Tuesday that the boards of Tesla and SpaceX have separately formed special committees of independent directors to discuss a merger, NBC News reported.

Musk made the disclosure on an analyst call about SpaceX’s quarterly results. He said the committees had not agreed on terms and there was no guarantee they would. “I think some people out there assume that a SpaceX and Tesla merger is a certainty, and I think that would be overstating it,” he said, according to NBC News.

He also made his preference clear. “Do I think it would be a good idea? Yes,” Musk said, the BBC reported. “I do think there’s a lot of merit to merging and a lot to be gained.”

The scale

The BBC put Tesla’s value at roughly $1.5 trillion and SpaceX’s at about $2 trillion, meaning a combination would rank among the largest mergers in history. SpaceX’s latest quarter showed why the idea has momentum: revenue from offering cloud computing capacity to other technology companies, including Anthropic and Google, reached $7.5 billion over three months, up from $813 million a year earlier, while Starlink revenue rose to $5.2 billion from $3 billion, the BBC reported. SpaceX remains unprofitable for the first nine months of the year, with a $1.1 billion loss, though it reported a $4.4 billion profit for the most recent quarter, according to the BBC.

SpaceX shares rose 8% in after-hours trading after Musk’s remarks, and Tesla shares rose 2%, the BBC reported. Tesla is scheduled to report its own quarterly results Wednesday.

The governance problem

The structure Musk described is the standard tool for conflicted deals. Because he is CEO of both companies, he said he is a conflicted party under securities rules and is not a member of either committee or involved in the talks, according to NBC News. He described the process as “an odd Kabuki dance, where groups of people are talking and I can’t be in the conversation.”

The hurdle on the Tesla side is significant. At least 50% of Tesla’s shareholders would need to approve a combination, which Musk described as “quite a high hurdle to achieve,” the BBC reported. Tesla shareholders have backed Musk before, approving a compensation package valued at around $1 trillion last year.

The companies already overlap. NBC News reported that Tesla announced in January it was investing about $2 billion in shares of an AI startup that is a SpaceX subsidiary, and that the two share interests in semiconductor manufacturing. The BBC cited Terafab, a joint chip manufacturing effort, as another sign Musk sees the companies as more effective together. Musk previously merged X with his AI startup, and SpaceX acquired that company in February, NBC News reported.

The Palo Alto stake

Tesla moved its corporate headquarters to Texas, but it kept a major engineering presence in Silicon Valley. In 2023, Gov. Gavin Newsom toured Tesla’s new global engineering and AI headquarters in Palo Alto with Musk, according to the governor’s office. Tesla’s contact page lists its engineering headquarters at 1501 Page Mill Road.

Musk said a merger would make sense for the companies’ work on chips, artificial intelligence and software, the same disciplines that define much of Tesla’s Palo Alto operation. No details about how a combined company would be organized have been disclosed.

The long view

Special committees exist to protect minority shareholders when a controlling figure sits on both sides of a deal, and their credibility will be the story if talks advance. Independent directors will need their own advisers, a defensible valuation for two companies whose prices reflect enormous expectations, and the willingness to say no. For Silicon Valley, a combined company would concentrate an unusual share of AI compute, chip ambition and engineering talent under a single controlling shareholder. That is a corporate-governance question first, but it would also shape hiring and real estate decisions on the Peninsula for years.

Sources

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