Reports of a Future SpaceX-Tesla Merger Are Picking Up Steam. But Is Such a Complex Deal Actually Feasible?

As if SpaceX going public at a potentially $2 trillion valuation in what could be the largest initial public offering (IPO) ever isn't enough to excite investors, recent reports suggest that SpaceX and Tesla (NASDAQ: TSLA) could also eventually merge.

There is clearly a connection between the two companies, given that both are controlled by Elon Musk and both are partially focused on artificial intelligence (AI). On Kalshi, over half of the people betting on a merger (as of May 27) predict it will go through before May 1, 2027.

However, given the size of both companies and the fact that they also operate some different businesses, any potential deal between SpaceX and Tesla could be complex.

Is a merger between these two Musk-founded juggernauts actually feasible?

Image source: Getty Images.

Why a SpaceX-Tesla merger could make sense

Speculation surrounding a SpaceX-Tesla tie-up has been picking up steam. CNBC spoke to a Tesla employee, who asked to remain anonymous, who said many workers expect a merger to occur and that it is discussed regularly within the company.

While Tesla focuses on electric vehicles, autonomous driving, and humanoid robots, and SpaceX is focusing on space voyages and its Starlink satellite internet service, AI is increasingly at the forefront.

SpaceX recently acquired another Musk-founded company, xAI, the owner of Grok, and several investors think it will pursue sovereign AI, meaning it would control the full AI stack from data centers to chips to intelligence. Tesla's autonomous driving and humanoid robots are both examples of generative AI.

"Tesla has to run powerful AI systems inside a moving vehicle with tight limits on power, cooling, latency, reliability and cost," Tomasz Tunguz, a venture capitalist at Theory Ventures, told CNBC. "SpaceX has to think about compute in orbit, where radiation, thermal cycling, launch mass, power generation and heat rejection all become existential design constraints."

Wedbush analyst Dan Ives also sees a merger happening next year, as Tesla already owns a stake in SpaceX and the two companies jointly own a terafab facility.

In SpaceX's registration statement, the company wrote that it and Tesla have "developed the early foundation of a strong and constructive partnership through a series of limited but successful commercial engagements."

Would a merger actually be feasible?

This is the big question in my mind. Tesla has a market cap of roughly $1.4 trillion, while SpaceX is aiming for a $2 trillion valuation. There are many questions about the deal structure. Even if it is a merger of equals, Musk would still have to determine who is the technical acquirer.

Funding the acquisition would also be quite difficult. At the end of the first quarter of 2026, Tesla had close to $45 billion of cash, while SpaceX only had about $16.6 billion, although the company could be about to raise $75 billion to $80 billion in the IPO.

So, the deal would require the technical acquirer to either raise substantial debt or issue shares, resulting in significant dilution. Additionally, while Musk controls 85% of SpaceX's voting power, his control in Tesla is only 20%.

Musk undoubtedly wields tremendous sway at Tesla, but has previously faced pushback from the board of directors, so it's not a given that the board would approve such a transaction.

There's also the question of how investors would value the merged company if such a deal were to go through. Mergers of equals are difficult to pull off, and the market always carries a healthy dose of skepticism regarding the synergies these deals can achieve.

Earlier this year, Gary Black of The Future Fund said that a SpaceX-Tesla merger would likely end poorly. Black assumed Tesla would be the acquirer and issue $1.5 trillion in equity to buy SpaceX, reducing the combined valuation from $3 trillion to $2.25 trillion due to dilution.

Black also pointed out that mergers like this often receive lower multiples and rarely a blended premium multiple from the market. He also noted that Tesla's new exposure to space and the satellite business might turn off some existing investors.

Black definitely makes some good points here, and investors should pay attention. While the idea of a SpaceX-Tesla merger will excite most, the devil is in the details.

Bram Berkowitz 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.