Elon Musk says a SpaceX-Tesla merger is a ‘good idea’. Here’s what’s in the way.

It’s no secret that a merger between Space Exploration Technology Company (NASDAQ:SPCX) and Tesla could be in the works.

Market prediction platform Kalshi estimates a 59% chance that such a merger will occur before next May.

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During SpaceX’s latest earnings conference call, SpaceX and Tesla founder and CEO Elon Musk added fuel to the fire by saying, “Do I think this would be a good idea?” Yes,” while discussing the idea. Musk added that both companies have created special committees to explore such a transaction.

But a merger between two such massive companies promises to be complex and risks encountering several obstacles. Here’s what’s in the way.

Image source: The White House.

Approval of the transaction is not guaranteed and regulatory challenges could arise

What makes a SpaceX-Tesla merger unique is that it involves two of the largest companies in the world by market capitalization, with the same CEO also owning a significant stake in both.

At SpaceX, which has a market capitalization of $2 trillion, Musk controls virtually all voting rights. The company owns both Class A and Class B common stock. Musk owns most of the Class B stock. Collectively, Musk controls approximately 85% of the voting power.

It’s a different story at Tesla, where there aren’t two distinct share classes, and Musk owns about 19.8% of the shares outstanding, according to the company’s latest proxy statement.

A recent regulatory filing from SpaceX indicates that a merger would require approval from a special committee, the board of directors and Musk, who recused himself from negotiations due to a conflict of interest.

“…Ultimately, the shareholders have to support this. And particularly on the Tesla side, we’re going to need a 50% vote of all the shares, not just those voting, but all the shareholders,” Musk said during SpaceX’s earnings conference call. “And that’s a big hurdle to clear. So, and I can just say at this point, the select committees have not reached agreement on the terms of any transaction.”

If they were to agree, a SpaceX-Tesla merger could run into regulatory issues. The combined entity will bring together numerous activities under one roof, particularly in the field of artificial intelligence.

″“Antitrust oversight, national security considerations (given SpaceX’s military contracts), and cross-border regulatory reviews all present significant challenges,” Counterpoint Research analyst Kevin Li wrote in an email to CNBC.

Musk also hasn’t made many friends among Democratic politicians lately, having spent about $445 million through super PACs this election cycle to support Republican candidates. Kalshi predicts that Democrats will win back both the U.S. Senate and the House of Representatives in the upcoming midterm elections.

Deal likely won’t result in huge bonus

Gary Black, managing partner of the Future Fund, recently wrote on

Black doesn’t expect the deal “…to be as compelling” because of “the massive dilution and completely stock-based economics.”

Ultimately, a SpaceX-Tesla deal could make sense, as both companies are currently focused on AI. Musk has already said he expects robotics to be an important part of SpaceX in the long term, and Tesla is beginning production of its Optimus humanoid robots.

SpaceX and Tesla are also already collaborating on several projects, whether it’s Tesla’s new Roadster or SpaceX’s Terafab facility.

But the agreement is in no way guaranteed for the reasons mentioned above. Even if it does, it’s unlikely to result in a huge premium on Tesla stock. The market is already aware that there is a high probability that a deal will be announced, so some of that is probably already priced into Tesla’s stock price.

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Bram Berkowitz has no position in any of the stocks mentioned. The Motley Fool Ranks and Recommends Tesla. The Motley Fool has a disclosure policy.

Elon Musk says a SpaceX-Tesla merger is a ‘good idea’. Here’s what’s in the way. was originally published by The Motley Fool