Why Tesla Complicates Any SpaceX-xAI Tie-Up

Key Moments

Musk Inc Vision Meets Practical Constraints

For years, Elon Musk and his supporters have floated the idea of uniting his companies into a single powerhouse. However, current market realities favor smaller steps. SpaceX is preparing for a potential IPO, while Tesla is navigating a demanding transition from traditional EVs to autonomous taxis and robots.

Against this backdrop, Reuters reported that SpaceX is close to an agreement to acquire xAI. The move would support Musk’s goal of placing data centers in orbit. According to Musk, space offers an ideal setting for energy-intensive computing.

Because Musk privately controls both SpaceX and xAI, a merger between them appears simpler. By contrast, any deal involving Tesla would face far greater hurdles. Still, some investors view a Tesla-SpaceX tie-up as a long-term possibility.

Strategic Rationale for Tighter Integration

Bloomberg reported that SpaceX has explored two paths: a merger with Tesla or a combination with xAI. In both cases, artificial intelligence sits at the center of the strategy.

Tesla has tied its future to AI-powered self-driving systems and humanoid robots. Meanwhile, SpaceX plans to deploy orbiting data centers. These facilities could supply the computing power Tesla’s AI ambitions require.

“If you’re trying to build robots, autonomous cars, and rockets, these efforts fit together,” said Arthur Laffer Jr., president of Laffer Tengler Investments and a Tesla investor. He added that Musk views each company as part of a broader system.

At the same time, Tesla remains early in developing both autonomous driving and robotics. As a result, the shift has gained urgency after two straight years of declining EV sales.

Why a SpaceX-xAI Deal Looks Cleaner

From an investor standpoint, a SpaceX-xAI deal is easier to assess and execute.

Importantly, such a transaction would not necessarily delay SpaceX’s IPO. xAI is much smaller, and both firms remain private under Musk’s control. This month, xAI raised $20 billion, exceeding a $15 billion target and valuing the company at $230 billion.

By comparison, SpaceX could go public later this year with a valuation above $1 trillion, according to Reuters and other media.

Tesla’s market capitalization now exceeds $1.4 trillion, after its shares gained 3.3% on Friday.

“Most Tesla and SpaceX investors are betting on Elon Musk himself,” said Andrew Rocco, a stock strategist at Zacks Investment Research. He argued that a single entity could help Musk focus resources more effectively.

Regulatory View and Competitive Landscape

William Kovacic, a former Federal Trade Commission chairman, said a combination of Tesla, SpaceX, and xAI would likely avoid antitrust concerns. The companies operate in distinct industries and already fall under Musk’s control.

Unlike mergers between direct competitors, these businesses leave room for other players, Kovacic added.

Tesla-SpaceX: Governance, Valuation and Shareholder Risk

Any merger involving Tesla would require shareholder approval through a vote or tender offer. Such processes can prove contentious, as recent corporate battles have shown. Even so, Musk has often persuaded Tesla shareholders to back his vision.

Still, many investors remain cautious. One concern is that Tesla could overpay for SpaceX. Another is the challenge of valuing private companies with limited financial disclosure.

“Bringing Musk’s private companies into Tesla would involve significant complexity,” said John Streur of Boston Common Asset Management. “If the valuations are too high, shareholders would see the deal as dilutive.”

Tesla’s valuation already looks stretched. The company trades at a forward price-to-earnings ratio above 200. By comparison, peers such as Meta, Microsoft, and Alphabet trade between 25 and 35, according to LSEG data.

Valuation Challenges and the Role of a SpaceX IPO

Edward Best, co-chair of capital markets at Willkie Farr & Gallagher, said a SpaceX IPO could change the equation.

“A public listing provides an independent valuation,” Best said. “That clarity does not exist with private companies.”

Key Valuation Figures at a Glance