American billionaire Elon Musk's SpaceX and Tesla explore $3.5 trillion merger

American billionaire Elon Musk said SpaceX and Tesla Inc. have each set up special committees of independent directors to study a merger of the two companies, a combination that would bring together businesses worth about $3.5 trillion and rank as the largest corporate deal on record.

Musk, who runs both companies, disclosed the talks on Tuesday during SpaceX's third-quarter earnings webcast. He said he favors a deal but has been kept out of the discussions because he controls both sides.

"Because I'm a conflicted party, I can't actually be in the discussions," Musk said. "I do think there's a lot of merit to combining the companies."

The committees have not agreed on terms, and Musk cautioned investors against treating a deal as settled. "Some people out there assume that a SpaceX and Tesla merger is a certainty," he said. "I think that would be overstating it."

SpaceX has a stock market value of about $2 trillion, and Tesla is worth close to $1.5 trillion. SpaceX shares rose 4.6% in after-hours trading following the results, while Tesla gained 1.2%.

What a deal would combine

A merger would put Tesla's electric car, battery and humanoid robot businesses under the same roof as SpaceX's rockets, its Starlink satellite internet service and its artificial intelligence operations. "There's a lot to be gained from cooperating on developing superintelligence software," Musk said. Both companies are spending heavily on AI, from data centers to self-driving cars.

The two companies already do business with each other. SpaceX has bought more than $100 million worth of Tesla Cybertrucks, and Musk's AI company xAI, which SpaceX absorbed in February, is a large buyer of Tesla's utility-scale batteries. SpaceX considered a combination with Tesla early this year before deciding to merge with xAI instead, in a deal that valued SpaceX at $1 trillion and xAI at $250 billion.

Any merger would need the backing of Tesla's shareholders. Musk said the deal would require the approval of a majority of all Tesla shares outstanding, rather than a majority of the votes cast, which he described as a high bar. Tesla holds its annual meeting on Dec. 3.

Analysts at Barclays told clients earlier this month that a deal could be announced before that meeting. Gene Munster, managing partner at Deepwater Asset Management, put the odds of a merger within two years at 95%.

SpaceX swings to a profit

Musk spoke as SpaceX reported its first quarterly operating profit since its record initial public offering in June. Revenue jumped 161% from a year earlier to $14.6 billion in the three months to September, beating analysts' estimates of about $12.9 billion. Operating income came to $2.79 billion, compared with an operating loss of $143 million in the second quarter.

The company's AI business, which rents computing power to customers including Anthropic, Google and X, generated $7.56 billion in revenue, almost triple the previous quarter and well ahead of Starlink. Revenue from the connectivity unit, which is mostly Starlink, rose 69% to $5.25 billion. The rocket launch business grew 6% to $1.77 billion. SpaceX spent $19.6 billion on equipment and other capital projects in the quarter.

Tesla reports its own third-quarter results on Wednesday.

Musk's stakes

Musk is the largest shareholder in both companies. He held 48.4% of SpaceX as of June 30, including shares that vest only if the company hits performance targets, and he controls more than 82% of its voting power. He is also Tesla's biggest investor. The two holdings make up most of a fortune that has made him the world's richest person.

How the two stakes would be blended in a merger, and how much of the combined company Musk would control, would depend on the exchange ratio the committees agree on. Musk has said in the past that he wants enough voting power at Tesla to keep control over the company's AI and robotics work.