SpaceX and Tesla merger talk attracts attention following financial results

Elon Musk said tesla Shareholders on Wednesday said the following regarding a potential merger with: space xhe has already “said all there was to say.” Tesla’s head of investor relations told analysts that executives “have no intention of addressing” the issue before answering their questions.

A day earlier, Musk had already ensured that the partnership between the multitrillion-dollar companies would be a major topic of conversation on Wall Street for some time to come, after endorsing a possible merger during SpaceX’s third-quarter earnings conference.

“Do you think that’s a good idea? Yes,” Musk said on Tuesday, revealing that the two companies had formed a special committee to consider the deal.

Although Musk has said commenting publicly on the issue is “like tap-dancing in a minefield,” analysts, investors and fans have long been obsessed with the prospects for “Musknomy” and the conglomerate that will bring the development of electric vehicles and humanoid robots, along with reusable rockets, satellite communications and artificial intelligence.

The talk of the merger overshadowed Tesla’s earnings report, which showed a decline in auto revenue and an even bigger decline in the company’s energy business. Mr. Musk has been touting to Wall Street the promise of an electric car maker built around robo-taxi and humanoid robots rather than car sales. However, the company’s self-driving technology is still in development, its robotaxi service is in a very early stage, and Optimus robots are not ready for mass production.

Tesla shares fell 3% on Thursday and are now down 17% for the year. SpaceX plunged 9%, erasing gains from Wednesday and sending the stock below its opening price after the company made its market debut in June.

William Blair analysts wrote in a note Thursday that Musk’s merger efforts are all for control purposes, not to strengthen the business.

“While we fully respect the potential for overlap and cooperation, we see this as a truly unique case in which Mr. Musk is running both companies as if they were already one entity,” the analysts wrote. “It is difficult to find significant opportunities that can only be achieved through formal combinations.”

Tesla and SpaceX did not respond to requests for comment.

At SpaceX, Musk is in control. The world’s richest person has a super voting power of 10 to 1, controlling almost 80% of the voting power. SpaceX said in its IPO prospectus that because it is a “controlled company,” its Class A shareholders are not afforded “the protections afforded to shareholders of companies subject to all of the corporate governance requirements” such as Nasdaq.

Tesla is a different story. Musk beneficially owns 19.8% of the stock, according to the company’s latest proxy filing. “We need a vote of 50% of all shareholders, not just voters, and that’s a pretty high hurdle,” Musk told Tesla at SpaceX’s earnings conference.

He said he was a “competing party” and could not participate in negotiations between the two sides.

SpaceX currently has a market cap of nearly $2 trillion, while Tesla’s market cap is about $1.5 trillion. That could make SpaceX the acquiring company in a stock swap, giving Musk his best chance of controlling the combined company.

Eric Talley, a law professor and corporate law expert at Columbia University, told CNBC that a merger could alleviate shareholder concerns about where Musk is spending his time and company resources.

Talley said the concern among both investor groups is which entity should be responsible for various efforts in robotics and AI, as the two companies are converging in the areas of robotics and AI.

“That caused some indigestion among shareholders and a lawsuit,” Tully said. “We believe that shareholders of both companies would benefit from resolving this issue, and it would also prevent lawsuits over divided loyalties.”

Even if their respective boards agree on a merger, regulatory hurdles could be high, experts said.

Former Tesla director Steve Westley told CNBC’s David Faber on Thursday that he believes the two companies will move quickly to announce a proposed merger, “hopefully before the election.” There is a possibility that Congress will flip in favor of the Democratic Party in the midterm elections to be held within two weeks.

The big question will be “what the regulators will say and what SpaceX has to do to make this happen,” Westley said.

Outside the United States, Westley said companies have to deal with China. This is an important market for Tesla from a vehicle manufacturing standpoint, accounting for 22% of the company’s revenue last year.

Talley noted that Chinese national security officials are likely to be particularly interested in such a deal because “there are probably hundreds of thousands of Teslas, computers on wheels, running around right now.” Meanwhile, SpaceX has satellites in its Starlink constellation that constantly feed data to the U.S. government, he said.

“Antitrust oversight, national security considerations (in light of SpaceX’s military contract), and cross-border regulatory scrutiny all present significant challenges,” Kevin Li, an analyst at Counterpoint Research in Beijing, said in an email.

Mr. Musk did not give a deadline for the transaction to be completed, but he has been active in making deals recently, including putting together his own company. Earlier this year, SpaceX acquired Musk’s xAI in a deal that values ​​the combined company at $1.25 trillion, paving the way for a record IPO. Last year, Musk merged xAI and X, formerly known as Twitter, to be acquired in 2022 for $44 billion.

And in August, SpaceX completed its $60 billion acquisition of AI coding startup Cursor.

Last Thursday, just days before Musk floated the merger idea, he unveiled a prototype of Tesla’s new Roadster. The roadster relies on SpaceX technology to enable it to hover. The event was livestreamed from SpaceX’s test site and further fueled merger speculation that had been building for months.

Ahead of SpaceX’s June IPO, Chief Operating Officer Gwynne Shotwell told CNBC that the merger “may make Elon’s life a little bit easier.”

“There is a unity in what we are all trying to accomplish in the future,” Shotwell said. “But right now, we’re focused on keeping the lights on here.”

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