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Elon Musk wants to create the world's most valuable conglomerate at a time when everyone else is getting divorced.

Today we’re talking about the potential mega merger, the rationales for maybe doing so, and analyzing if they’d just be better off partnering.

Let’s dive in

There's a scene in Ozark where Marty Byrde is standing in front of a washing machine, teaching his son Jonah how to launder money. He's giving him the 101 on moving funds between businesses, shape-shifting its origin through a bunch of transactions… and voilà! Eventually nobody knows where the hell it came from.

When I think about Tesla and SpaceX merging, I picture Elon Musk having a similar conversation with one of his 28 kids, explaining how the Terafab joint venture works and how the same semiconductor factory can receive billions of dollars from multiple companies he controls.

On Thursday, Bloomberg reported that Tesla and SpaceX are progressing in merger negotiations, with a potential announcement coming as soon as December. SpaceX, which went public just five months ago, is trading at a valuation of roughly $1.9 trillion and isn't even through their full lockup journey yet. Tesla, which has been public since 2010, is worth another $1.6 trillion. Combined, we'd be looking at a $3.5 trillion-ish company (before adding any value the merger itself creates).

For decades, some of the world's largest companies have been trying to get smaller. General Electric, Johnson & Johnson, Kellogg, and eBay all decided at various points that their individual businesses might be worth more to shareholders separately than together. Wall Street even has a name for the phenomenon: the conglomerate discount.

It's partly why I think Bloomberg still exists as a private company. How would the market separate the media brand from the you-never-ever-rip-it-out terminal software?

So in a world where we've seen more companies divest into separate, more clearly understandable business narratives, Elon Musk is considering putting an electric vehicle manufacturer, a satellite internet provider, a rocket company, a social media company, and a collection of AI businesses under one roof.

Is this genius, or stuffing ten pounds of shit into a five pound bag?

In my mind, this comes down to two questions:

1. Does combining them create value?

2. And who gets the value?

(Oh, and I’m going to do this analysis to the soundtrack of some of my favorite late 90s and early 2000s pop punk songs. bc I don’t have an editor and the Dunkin is strong rite now)

To the tune of: “Are You In?” - Incubus

Let’s look at the numbers for the twelve months through September 2026, separately and combined:

The first thing that jumps out is that Tesla generates more than three times as much revenue as SpaceX, yet SpaceX is worth about $350 billion more. And while Tesla generated positive free cash flow over the last twelve months, SpaceX burned through almost $40 billion, largely because of the unearthly (no pun intended) amount of money it's pouring into AI infrastructure.

Now, I recognize that current revenue and profitability don't capture much of what investors are paying for in either company. They're underwriting what these businesses could become. Both trade at more than 100x EBITDA (105x for Tesla, 124x for SpaceX), so neither is being priced on what it earns today. And SpaceX's 161% revenue growth last quarter certainly gives investors more to work with. Keep in mind, that's consolidated growth post M&A, with a big chunk coming from its Super Intelligence segment, including AI infrastructure contracts and the Cursor acquisition. Starlink's connectivity segment still grew an impressive 69% over the same quarter.

But the difference in financial profiles is pretty staggering. SpaceX spent $55 billion on capex over the last twelve months, more than three and a half times Tesla's $15 billion, on less than a third of the revenue. They are aggressively building for the future.

For a Tesla shareholder, the question is whether trading your existing shares for a (potential) minority interest in a considerably more capital-intensive company is a good deal.

To the tune of: “Come Out and Play (Keep ’Em Separated)” - The Offspring

Is it better to keep ’em separated?

This whole Tesla and SpaceX merger reminds me of cereal. Not because I first heard about it while eating one of those organic, protein-filled Fruit Loop alternatives my mother-in-law bought for my kids, which I can confirm taste like absolute fruity trash, but because of Kellogg.

In 2023, Kellogg decided to split itself into two publicly traded companies. Kellanova became the global snacks business, including Pringles, Cheez-It, and Pop-Tarts, along with international cereal. WK Kellogg got the more mature North American cereal business, including Frosted Flakes, Froot Loops, and Rice Krispies. Apparently, even Tony the Tiger wasn't enough to keep the family together (to his discredit, I heard he had a gambling problem and drank too much).

The snacks business was growing faster and looked a lot more like Hershey, Mondelez, and Frito-Lay, which commanded considerably higher caloric valuation multiples than traditional stale-ass cereal companies. But with both businesses under one roof, investors weren't giving the faster-growing snacks portfolio the multiple management thought it deserved.

So they split them up, allowing each business to be valued on its own merits and pursue its own capital allocation priorities.

A more tech-forward example is eBay and PayPal, which separated in 2015 after spending more than a decade together. There were obvious benefits to owning the payment processor that handled transactions on your marketplace, particularly when eBay was responsible for a meaningful portion of PayPal's payment volume. It was a classic vertical integration argument. But PayPal also had opportunities to process transactions for other merchants, including some that competed with eBay which was kinda like frowned upon.

The companies eventually determined that they could preserve the commercial benefits of working together through operating agreements without requiring them to share an ownership structure. Investors could own the marketplace, the payments business, or both, while each management team could allocate capital toward the opportunities that made sense for its respective business.

Which reminds me a ton of SpaceX and Tesla. Both companies have very different growth rates, margins, capital requirements, and expectations baked into their valuations. Combining them introduces the possibility that the market applies a more conservative multiple to the entire enterprise, particularly if investors have a difficult time separating the financial performance of its individual businesses.

As many valuation experts would tell you, when investors can't clearly understand something, they don't reward it with the larger multiple; they take the floor.

Which raises the question all shareholders should ask: why should I be forced to buy SpaceX to get Tesla exposure, or vice versa, when these companies already partner so closely?

To the tune of: “Stay Together for the Kids” - blink 182

I have to admit, after going through the related-party disclosures in SpaceX's S-1, I can see why Elon might want to simplify the corporate family tree he's assembled over the years (not referring to his 28 kids).

Rumor is US intelligence forces terrorists to hand write the related party transactions section of SpaceX's S1 over and over again before receiving food and water rations.

Needless to say, Tesla and SpaceX already do a considerable amount of business together. Tesla recognized $626 million of revenue from SpaceX in the first nine months of 2026, primarily from selling Megapack energy storage systems. At the end of September, it also had $729 million of receivables from SpaceX and another $648 million of deferred revenue associated with those contracts.

Tesla also invested $2 billion in what was originally xAI preferred stock, which subsequently became an ownership interest in SpaceX following the combination of those businesses. That gives Tesla a stake of less than 1% in SpaceX, which sounds like a small amount until you remember we're talking about a company worth almost $2 trillion.

On shared projects like the Terafab chip factory, the companies have to work out who contributes what, who owns the resulting intellectual property, and how future capacity gets divided up. From a resource allocation standpoint, putting megawatts and chips to their next best marginal use case is a sticky wicket. And I can imagine those conversations are considerably more annoying when you have multiple boards and shareholder groups to answer to.

A merger would remove some of those complications, particularly around approving related-party transactions and coordinating shared investments.

To the tune of: “In Too Deep” - Sum 41

There's a legitimate argument for combining Tesla and SpaceX if you believe the future of deep tech and AI involves a lot more physical infrastructure than the software we've become accustomed to using.

Elon's vision is to own as much of that infrastructure as possible, from the chips that power AI models to the data centers that train them, the satellites that connect everything, and eventually the cars and robots that put those models to work in the physical world.

SpaceX brings the Starlink satellite network, launch capabilities, and plans to put computing infrastructure into orbit. Tesla brings energy storage, advanced manufacturing, and two enormous potential applications for AI in autonomous vehicles and humanoid robots.

And then there's Terafab.

It's a massive semiconductor manufacturing project being developed by Tesla and SpaceX in Texas, with the goal of producing their own AI chips rather than relying entirely on suppliers like Nvidia and TSMC. And when I say massive, the initial investment is estimated at $16.8 billion, with plans for more than 100 million square feet of manufacturing space. To put that in perspective, that’s the equivalent of roughly 3.6 square miles of floor space. SpaceX describes it as what would become the world's largest chip manufacturing facility.

The chips would eventually go into everything from Tesla's autonomous vehicles and Optimus robots to SpaceX's satellites and proposed orbital data centers. So both benefit enormously.

And there’s a solid economic argument for owning all of this. Every time Tesla buys chips from Nvidia, computing capacity from a third party, or connectivity from an outside provider, someone else is making a margin on a product Tesla needs. Bringing more of those capabilities in-house gives Elon greater control over supply, pricing, and the pace at which new products can be developed (which is maybe the most critical element in today's ultra competitive rat race).

Of course, you also inherit the cost of building and maintaining all that infrastructure. And I'd argue semiconductor manufacturing is a considerably more expensive hobby than negotiating with Nvidia over purchase orders ("Jensen? Jensen? Wait, Jensen doesn’t work there any more?").

Net net, you're trading supplier dependence (which admittedly does suck) for some pretty enormous capital commitments (which are also scary).

I buy a lot of the industrial logic behind this, not that I'm an engineer or anything (had a hard time installing a new bell onto my daughter's Elsa bike yesterday). What I'm less convinced of is how much of it requires a merger.

So how much additional value does common ownership actually create, beyond what Elon could accomplish with the companies he already controls?

To the tune of: “If He's Here, Who's Runnin' Hell?” - Four Year Strong

I think the biggest potential benefit of combining Tesla and SpaceX has to do with people (and Elon) allocation.

All that concrete and steel is only as good as the people deciding what to build with it. What actually compounds at both companies is the intelligence of a relatively small group of engineers who know how to land a rocket booster, design a chip, or train a self-driving model, which makes capital allocation here a form of human (and CEO) allocation too. SpaceX does about $1.46 million of revenue per employee, nearly double Tesla's $768K (granted, Tesla's headcount is mostly factory workers).

Under the current structure, each company has to finance its own investments. And while Elon has considerable influence over both companies, he can't simply move $10 billion from Tesla's bank account to SpaceX's because he thinks orbital data centers are a better use of the money. Tesla has its own shareholders, board, and fiduciary obligations.

A combined company could fund investments across the portfolio without negotiating a separate transaction every time. If SpaceX has an investment opportunity expected to generate a 25% return while Tesla's next best project is expected to generate 10%, you'd ideally want to put the money toward SpaceX.

The same logic applies to people, and Elon has already shown he'll move them around when it suits him. After closing the Twitter deal in 2022, he pulled more than 50 Tesla employees, mostly Autopilot software engineers, into Twitter to review code, and later told a Delaware court they had volunteered after hours and weren't "Tesla assets." In 2024, internal Nvidia emails showed he had redirected 12,000 H100 GPUs reserved for Tesla to X, pushing back more than $500 million of Tesla's chip deliveries by months. Tesla shareholders were not pleased about either.

And the scarcest person in the whole operation is Elon. He has spent years spreading his time between Tesla, SpaceX, xAI, and whatever else he's gotten himself into that week (e.g., deleting branches of the US government), and I'm sure SpaceX investors would prefer he wasn't spending his afternoons arguing with strangers on X about immigration policy from the toilet. A merger won't give him more hours in the day, but every hour he spends on Terafab, Optimus, or orbital data centers would accrue to the same shareholders.

But here’s also where I disagree with myself, lol.

I'd push back on the assumption that combining the companies automatically leads to better capital allocation. Making capital (and people) easier to move around doesn't guarantee they end up in the right place.

In fact, one of the benefits of keeping these companies separate is that they're forced to compete for capital in the market. SpaceX has to convince investors or lenders that its next $10 billion investment is worthwhile, rather than relying on cash generated elsewhere in the Musk universe.

I've always thought one of the harder parts of capital allocation is deciding what not to fund. Having access to a few trillion dollars of market capitalization and a seemingly unlimited list of things you want to build doesn't make that decision any easier.

To the tune of: “I Write Sins Not Tragedies” - Panic! at the Disco

Let's assume for a minute that Elon is right, and putting Tesla and SpaceX together creates more value than keeping them separate. There's still the question of how much of that value accrues to the shareholders of each business.

Does Tesla need a premium to get the vote through?

A 23% premium gets Tesla holders to 50/50, and premiums on public company takeovers usually land somewhere between 20% and 40%.

Pay Tesla holders a normal premium and SpaceX shareholders, the side doing the buying, end up owning less than half of the combined company.

Both sides have an argument.

Tesla brings 76% of the combined revenue, about half the EBITDA, and the only positive free cash flow, while SpaceX burned close to $40 billion over the last twelve months.

SpaceX holders would counter that they're bringing the growth (161% last quarter vs. flat at Tesla) at more than three times the margin (47% vs. 14%), and growth is what the market is paying for.

Some context on who would capture the value: let's say the two companies are worth $3.5 trillion independently and investors believe the merger creates another $1 trillion of upside, or roughly a 29% bump. The combined company would now be worth $4.5 trillion, with the additional value split between the two shareholder groups according to their ownership percentages.

At a 45/55 split, Tesla shareholders would capture approximately $450 billion of that incremental value, with SpaceX shareholders receiving the remaining $550 billion.

At this size, even the smallest changes to the exchange ratio become enormous amounts of money. One percentage point of ownership in a $4.5 trillion company is worth $45 billion.

So if Tesla negotiates its ownership from 45% to 48%, that's a $135 billion transfer of value from SpaceX shareholders to Tesla shareholders, assuming the combined valuation stays the same.

I'm also interested in how Elon's personal ownership factors into this.

He owns roughly 18% of Tesla and about 48% of SpaceX, so every point of ownership that goes to Tesla holders comes disproportionately out of his pocket. If the combined company is worth the same $3.45 trillion the two trade for today, Elon's stake is worth about $1.19 trillion with no premium and about $1.13 trillion if Tesla holders get 30%. That's roughly $70 billion of personal incentive to keep the premium small.

That raises another corporate governance question: When the same guy controls or heavily influences both sides of a transaction, who is negotiating against whom?

Tesla and SpaceX have already formed special committees of independent directors to evaluate a potential deal, and Elon has said he's too conflicted (and prob too busy) to be part of those discussions.

Although I wonder how much Tesla and SpaceX shareholders just chalk it up to a foregone conclusion. Elon has already bought the ticker ELON, regardless of which corporate entity he attaches to it. The boat (or spaceship) may have left the dock years ago.

It's like watching two of your friends who've been in a dysfunctional relationship for years decide to get married and have kids. You can tell them it's a terrible idea, but they've already made up their minds.

And given how much these companies are already sleeping together, I'm not sure a marriage certificate fixes anything. It might just make the eventual divorce a hell of a lot more expensive.

Wishing you trade at a high revenue and EBITDA multiple,

CJ