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- Caroline Mercer via Fortune | FORTUNE
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Musk Says Tesla and SpaceX Boards Form Committees to Weigh $3.5 Trillion Merger
ReMusk Says Tesla and SpaceX Boards Form Committees to Weigh $3.5 Trillion Merger
Independent directors at Tesla and SpaceX have formed special committees to explore a possible merger, Elon Musk told investors, while stressing that no deal terms have been agreed and that he is excluded from the talks as a conflicted party.
Tesla and SpaceX have begun formal discussions about a possible merger, with independent directors at both companies forming special committees to examine a combination, Elon Musk told investors during SpaceX's third-quarter earnings call. The two companies, both led by Musk, would carry a combined market value of roughly $3.5 trillion at current prices, with SpaceX at about $2 trillion and Tesla at nearly $1.5 trillion.
Musk said he cannot take part in the committee discussions because his dual role as chief executive of both companies makes him a conflicted party. «These special committees consist of independent directors, and because I'm a conflicted party, I can't actually be in the discussions of the special committees,» he said, adding that the situation was «an odd kabuki dance where two groups of people are talking and I can't be in the conversation.» He also cautioned that a deal is far from assured. «Some people out there assume that a SpaceX and Tesla merger is a certainty, and I think that would be overstating it,» Musk said, noting that the committees have not reached any agreement on terms.
The disclosure came as SpaceX reported its first operating profit since its June initial public offering. Third-quarter revenue rose 161% to $14.58 billion, well above the $12.86 billion analysts had expected, while operating revenue reached $2.79 billion and net income was $4.4 billion. Revenue from SpaceX's AI business, renamed Super Intelligence, nearly tripled from the second quarter to $7.56 billion, surpassing Starlink's $5.25 billion for the first time since the company went public. Tesla shares rose just over 1% in after-hours trading, while SpaceX gained more than 5% following the analyst question-and-answer session.
Musk's personal stakes complicate any transaction. He owns roughly 20% of Tesla and 45% of SpaceX, and controls about 82% of the voting power at SpaceX. A combined company would leave him with about a third of the entity. On the Tesla side, a merger would require support from a majority of all outstanding shares, which Musk described as «quite a high hurdle.» Tesla filed its annual shareholder proxy report on Monday, and it does not include a merger proposal for shareholders to vote on. The proxy did confirm a $2 billion investment by Tesla in SpaceX, underscoring how financially entangled the companies already are.
The boards also overlap in several areas. Ira Ehrenpreis, founder of venture capital firm DBL Partners, chairs SpaceX's compensation and nominating committee as well as two separate committees at Tesla. Tesla board member James Murdoch, a director since 2017, testified in a previous legal challenge over Musk's pay package that he had previously invested in SpaceX. Musk said the committees were formed «at the request of shareholders,» and rumors of a tie-up had circulated for months, even before SpaceX's blockbuster IPO in June.
Musk has made clear he sees strategic logic in combining the companies, citing collaboration on AI software, chip design, robotics and connectivity, along with the planned Terafab chip plant being developed jointly by SpaceX and Tesla. The plant is targeting 2028 for volume chip production, according to Musk. Even so, he acknowledged the awkwardness of being sidelined from the negotiations. «This is definitely the kind of question where I feel like I'm tap dancing through a minefield,» he said.
On the earnings call, Musk also offered an aggressive outlook for SpaceX, claiming its buildout pace implies annual recurring revenue of $500 billion to $1 trillion by the end of 2027. Chief financial officer Bret Johnsen reaffirmed a target of $100 billion in annualized revenue by the end of this year. At its third-quarter pace, SpaceX is generating about $58 billion a year, and reaching the $100 billion figure would require roughly $8.3 billion of revenue in December, about 70% more than its average month last quarter. Tesla did not immediately respond to a request for comment.
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