Is next year too soon?
I’m shocked that this breaking news hasn’t been posted on our 7-member board.
WSJ reports say that Tesla is evaluating divesting its China operations because of SpaceX’s ties to US defense, which is a serious concern for both the US and China.
The reports were denied, which suggests they are accurate.
Tesla China produces over 50% of Tesla’s EVs and surely has the highest margin plants.
The merger must be too lucrative to not consider abandoning 50% of revenue and even more of the margin.
But Tesla is an AI company, so those plants might be irrelevant.
What value would a buyer put on Tesla China?
Will a buyer put a $600 billion value (1/2 of Tesla, or some other large number) on Tesla China vehicle and battery manufacturing?
(unlikely, unless someone can conjure up some “shares” of something at a high valuation)
Tesla executives have been told to prepare for a separation of the China business ahead of a potential merger,a person familiar with those talks said. And Tesla advisers have discussed possible options for a separation, including a spinoff, sale or closure, another person said.
…potentially impact its valuation if a SpaceX merger were to happen.
Separating Tesla’s China operations—including an electric-vehicle factory there—would address potential conflicts arising from SpaceX’s work as a major U.S. defense contractor.
Tesla has two major factories in Shanghai. They make electric cars and batteries that are sold in China and exported to various markets around the world, but not to the U.S. China is Tesla’s second-largest market after the U.S., making up around 18% of sales in the first half of 2026.
2 Likes
I think the chances of SPCX merging with TSLA are pretty small. Elon likes having two large public companies so that he can pull chicanery like installing Starlink in Teslas (which helps SPCX) and having SPCX buy Tesla’s vehicles (which helps Tesla).
Plus, he fought hard to get his trillion dollar TSLA pay package and that would likely go away under a merger. He also won’t be able to hold a potential merger over the market’s head if he actually goes through with it.
Additonally, with the recent collapse, SPCX is only worth $1.4 trillion while TSLA is worth $1.2 trillion. Not much room really for SPCX to take over TSLA.
I think the mostly likely thing to happen with SPCX is that Elon will give himself another trillion dollar (or maybe two trillion this time) pay package. He controls the majority of SPCX’s voting shares so there doesn’t appear to be anything stopping Elon from just using SPCX as his own personal wealth vehicle.
4 Likes
Good points.
Other points are
- two companies has self-dealing opportunity (though maybe same can be done in 1 entity?)
- cannot assume a smart decision is made, could be a dumb one like buy Twitter
I would not pretend to be knowledgeable in the dark arts of propping up valuations at 10x normal market pricing.
The pattern has been for the companies on more solid footing to absorb the weaker.
Tesla absorbed Solar City.
A chunk of Tesla was liquidated by one shareholder to buy Twitter.
Xai absorbed Twitter.
SpaceX absorbed Xai.
Promptly post-IPO, SpaceX traded $60 billion in shares for Cursor.
The currency is shares, not dollars, we can say that.
SpaceX and Tesla should be able to exist operationally for a long time in the absence of capex cash incinerators.
But what keeps the valuation extreme in the absence of, year after year, genuine new revenue?
Well, according to a WSJ aricle today, Musk gets his full pay package if the merger price is big enough:
“Every $500 billion added to the deal price would deliver as many shares again, up to $7.5 trillion. An $8.5 trillion acquisition—more than six times Tesla’s recent market value—would deliver the pay package’s full 424 million shares. That is the number of shares that would have clinched the maximum $1 trillion stock award for Musk.”
So, it looks like I was wrong about the merger. Musk desperately wants it so he can get his trillion dollar pay package immediately.
1 Like
That’s not what would happen.
There’s a “change of control” clause in the Tesla pay package. If Tesla is acquired, all the operational milestones drop out - and the entire pay package “vests” at whatever the market cap is of the acquisition.
But that wouldn’t get Musk a trillion dollars. The lowest market cap milestone for the first tranche of shares to go to Musk is $2 trillion. The current market cap for Tesla is $1 trillion. SpaceX would have to pay twice the going price for Tesla shares in order to hit that target for just that one target - and 6x going price to get the whole thing.
Could they do that? Maybe not. SpaceX’s corporate structure basically lets the board and the CEO do almost anything they want without it being subject to litigation from ordinary shareholders, but there are enough shareholders that own more than 3% of shares (like Blackrock and Vanguard) that they could probably stop that.
But more importantly - would they do that? Absolutely not. Remember, Musk owns about 13% of Tesla (rising to 29% if all his packages vest) - but he owns 46% of SpaceX. If SpaceX overpays for Tesla by 2x or 6x, it means Tesla shareholders get a vastly larger amount of the merged company than SpaceX shareholders. Since Musk has a much smaller proportion of Tesla than he does in SpaceX, he’s actually worse off vesting his options this way than just merging at current market price.
Merging at current market prices would give Musk about 34% of the merged company. Merging at 6x market prices gives Musk 33% of the merged company - his share in Tesla would rise to about 29% of the target company, but because he still owns a larger proportion of SpaceX than Tesla he’d still come off worse.
1 Like