Key points
- SpaceX's prospectus flags a change in party control
- Why Democrats could complicate a Tesla-SpaceX deal
- Musk says little on Tesla's earnings call
A potential merger between Tesla (TSLA) and SpaceX (SPCX) could face political and regulatory scrutiny as well as a shareholder vote. SpaceX's IPO prospectus already warns that changes in political control can affect its government contracts and regulatory treatment, though that disclosure does not address a Tesla merger specifically.
Elon Musk, who runs both companies, said on Tuesday that each board has formed a special committee of independent directors to explore a deal. The committees haven't agreed on terms. On Tesla's earnings call Wednesday, he declined to say more. "With regard to a potential merger with SpaceX, I think I said everything that should be said yesterday," Musk said.
SpaceX's prospectus names the political risk
SpaceX spelled out the risk in its June IPO prospectus. The company said its relationships with U.S. government agencies "may be affected by which political party controls the presidency or one or both chambers of the U.S. Congress."
The same section says "shifts in the composition of the U.S. Congress or changes in the presidential administration can result in significant changes in government spending priorities, regulatory posture, and the allocation of contracts and resources across industries and programs." SpaceX warned that adverse developments could have "a material and adverse impact on our growth and competitive position."
The midterm elections are on November 3. President Donald Trump's second term ends in January 2029. Barclays analysts have suggested a deal could be announced before Tesla's December 3 annual meeting.
Democrats already have questions for Musk
Many lawmakers, especially Democrats, believe Musk already holds too much power. They could increase scrutiny of his companies' federal contracts and regulatory compliance, the Associated Press reported. SpaceX holds large federal contracts, and Tesla faces several safety investigations over its driver-assistance software. House Democrats have called for investigations into SpaceX's contracts and Musk's work with the Department of Government Efficiency.
Musk has also been the biggest donor to Republican midterm candidates, giving $276 million since July alone.
Congressional scrutiny of any deal could intensify if Democrats win control of either chamber. In June, Sen. Elizabeth Warren (D-Mass.) criticized SpaceX's IPO over Musk's concentrated voting power and weak investor protections.
Control and national security are part of the debate
Musk holds 19.8% of Tesla, according to Tesla's latest proxy statement. SpaceX's prospectus said he'd have about 82.4% of SpaceX's voting power after the offering. Barclays estimated that in a deal where SpaceX acquires Tesla, Musk could own around 37% of the combined company and control around 56% of its voting power. Those figures depend on Barclays' assumed deal structure, and no structure has been agreed.
Analysts have also raised national security and China questions. Morningstar analysts said a merger could raise U.S. national security concerns involving the combined company's supply chain. JPMorgan analysts flagged regulatory approval in China as a potential stumbling block.
What has to happen first
The committees still have to agree on terms. Musk said a deal would need approval from a majority of all outstanding Tesla shares, not just a majority of votes cast. He called that "quite a high hurdle."
No merger proposal is on the ballot for Tesla's December 3 meeting. We argued last week that a SpaceX merger would matter more for Tesla stock than this quarter's results.
