TLDR
- Elon Musk combined SpaceX and xAI into a $1 trillion entity, planning a mid-2026 IPO with potential $1.5 trillion valuation
- SpaceX applied to build one million satellite “space cloud” for AI computing, 100x larger than current Starlink network
- Tesla invested $2 billion in xAI and sold $430 million in Megapacks to the AI company during 2025
- Complete merger with Tesla unlikely due to valuation gap—Tesla trades at 200x 2026 earnings versus SpaceX at 400x
- Tesla holds Hold rating with $393.51 average price target, representing 6.7% downside from current price levels
Elon Musk’s decision to merge SpaceX with artificial intelligence startup xAI has investors wondering about Tesla’s role in the equation. The combined entity surpasses $1 trillion in value and sets the stage for a major IPO.
SpaceX acquired xAI ahead of a planned mid-2026 public offering. The space company seeks a valuation as high as $1.5 trillion and plans to raise up to $50 billion.
Musk announced the deal on SpaceX’s website, calling it “the most ambitious, vertically-integrated innovation engine on (and off) Earth.” The merger combines rocket technology, AI models like Grok, and satellite infrastructure under one roof.
xAI raised roughly $20 billion in early January at a $230 billion valuation. The AI startup burned through approximately $9.5 billion in the first nine months of 2025 as it competes with Google, OpenAI, and Anthropic.
Space Cloud Ambitions Drive Merger Logic
SpaceX filed with the Federal Communications Commission to build a “space cloud” of up to one million satellites. This proposal dwarfs Starlink, the company’s existing satellite broadband service, by a factor of 100.
The strategy uses solar power and space’s cold vacuum to overcome Earth-based AI computing limitations. These include power grid constraints and cooling infrastructure requirements.
For xAI, the merger provides access to funding through SpaceX’s IPO. The AI company needs massive capital to build out its data center infrastructure and catch up to market leaders.
Tesla’s Existing Connections
Musk’s companies already conduct business together regularly. Tesla integrated Grok into its vehicles while xAI uses Tesla’s Dojo computing infrastructure.
Tesla sold $430 million worth of Megapack batteries to xAI in 2025. These sales represented 3.4% of Tesla’s energy division revenue, according to SEC filings. The batteries supply power to xAI’s Memphis data centers.
Tesla also disclosed a $2 billion investment in xAI during its fourth-quarter earnings call. Previous transactions include Tesla selling automotive parts and solar equipment to SpaceX.
An enhanced SpaceX-xAI computing resource could potentially accelerate Tesla’s Full Self-Driving technology and Optimus robot production. However, this remains speculative.
Why Full Merger Faces Obstacles
Gary Black from Future Fund Active ETF highlighted a critical valuation problem. Tesla trades at approximately 200 times estimated 2026 earnings while SpaceX trades around 400 times earnings at its $800 billion valuation.
Combining Tesla with SpaceX would require issuing roughly 35% more Tesla shares at current valuations. “Many existing Tesla institutional shareholders would balk at the uncertainty of 25% profits coming from space travel/communications and sell their shares,” Black stated.
The merged SpaceX-xAI entity could also face regulatory scrutiny. SpaceX already battles spectrum allocation disputes with the FCC. Musk’s 13% stake in Tesla adds another layer of complexity.
Analyst Outlook
Tesla receives a Hold consensus rating on TipRanks. The rating combines 11 Buy recommendations, 12 Hold recommendations, and seven Sell recommendations.
The average price target sits at $393.51, implying 6.7% downside from current trading levels. Tesla shares gained 9.9% over the past year.
Tesla stock fell 2% on Monday while the S&P 500 and Dow Jones Industrial Average rose 0.5% and 1.1% respectively. Weak Chinese vehicle sales data may have pressured shares, with Chinese EV maker BYD dropping 6.9% in overseas trading.
Get 3 Free Stock Ebooks
Discover top-performing stocks in AI, Crypto, and Technology with expert analysis.
- Top 10 AI Stocks - Leading AI companies
- Top 10 Crypto Stocks - Blockchain leaders
- Top 10 Tech Stocks - Tech giants
