SpaceX and Tesla Are Considering a Mega Merger -- Here's What Investors Need to Know

Speculation about a potential merger between SpaceX (NASDAQ:SPCX) and Tesla (NASDAQ:TSLA) is nothing new. In early June, I warned that “a mega merger may be closer than you think.”

New reporting from The Wall Street Journal now suggests that both companies may soon position themselves for such a move.

“Elon Musk designed Tesla’s China business to be easily separated from its U.S. business because of geopolitical tensions,” the publication revealed. “It might also come in handy if he proceeds with a SpaceX merger.”

Regulatory pressures have been one of the biggest sticking points to a potential merger. Combining Tesla and SpaceX would create a massive, multi-trillion-dollar business with consolidated interests in AI, transportation, and space-based endeavors. Whether regulators would ultimately approve such a transaction has sparked considerable debate. But streamlining geopolitical considerations could ease some potential regulatory headwinds.

According to The Wall Street Journal, Elon Musk purposely structured a “laser” between Tesla’s U.S. and China businesses, allowing each to be severed from the other in case geopolitical concerns became a drag on the company’s growth trajectory. “He wanted to ensure that in the event of geopolitical strife between the two countries, at least the U.S. half of Tesla would survive,” the newspaper stressed.

Apparently, this “laser” is expected to be deployed soon, all in the hopes of improving the odds of a Tesla-SpaceX megamerger.

Will Tesla actually merge with SpaceX?

The benefits of merging Tesla and SpaceX are clear. Both companies are betting big on artificial intelligence. Prioritizing AI is capital-intensive, often involving the construction of data centers and supercomputers, as well as energy sources and other supporting infrastructure.

Combining SpaceX and Tesla would streamline each company’s AI efforts — benefiting strategic planning and access to capital. That’s true, particularly given Tesla and SpaceX already have shared interests. Both companies own a stake in xAI. Both have partnered on large-scale projects like Terafab, a chip-building enterprise. And both already buy each other’s products and services. In SpaceX’s IPO prospectus, Tesla was mentioned more than 80 times.

Image source: Getty Images

A merger may also give Musk more control over the direction of each business. Musk only controls around 20% of Tesla’s voting power. Musk, however, controls more than 80% of SpaceX’s voting power. Depending on how a merger is structured, Musk may be able to take full control over a combined entity. This possibility would surely be an incentive for him to get a deal done.

According to reports, Tesla could look to sell or spin off its China unit. That would have a huge impact on Tesla’s valuation, given that its China division accounts for roughly 20% of its vehicle sales while producing around half of its vehicles.

Depending on how Tesla separates from its China business, Tesla could not only reduce regulatory risk but also lower its relative valuation compared to SpaceX, giving Musk greater ultimate voting power in a combined entity.

So far, Musk has been coy about a potential merger. But he hasn’t exactly shot rumors down.

“Obviously, we can’t talk about, you know, combining companies and that kind of thing on earnings calls,” Musk recently said. “It has got to be done with the appropriate process.”

There is a rising belief that this process has begun. And whether a megamerger ultimately succeeds or not, it is increasingly clear that Musk will at least attempt to merge SpaceX and Tesla into what would become one of the largest AI companies on the planet.

Ryan Vanzo has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Tesla. The Motley Fool has a disclosure policy.