Elon Musk’s decision to merge SpaceX with his cash-intensive artificial intelligence venture, xAI, signifies a substantial shift in the hierarchy of his vast corporate empire. While Tesla has long been the engine of Musk’s liquidity and public persona, the recent consolidation reveals a rebalancing of power and wealth.
SpaceX, now privately valued at an impressive $1.25 trillion, is rapidly approaching Tesla’s market capitalization of approximately $1.58 trillion. Crucially, Musk’s ownership stake in SpaceX stands at an estimated 43%, significantly higher than his 13% holding in Tesla. This disparity means SpaceX now accounts for over half of Musk’s net worth, which has surged past $852 billion.
This strategic realignment comes at a pivotal moment for Tesla. The electric vehicle giant has started 2026 on a downward trajectory, with its stock already down 6% year-to-date. Early January saw Tesla report a concerning 16% year-over-year decline in vehicle deliveries. This was followed by the announcement of a 3% decrease in total revenue for 2025, marking the first annual contraction in its history.
Tesla’s core automotive business is facing intense headwinds. A surge of competition from established automakers and agile startups in China and Europe, coupled with the recent expiration of U.S. federal EV tax incentives, has put pressure on sales. Furthermore, Musk’s increasingly prominent and often polarizing political engagement, including his past dealings with the Trump administration and his public support for certain right-leaning figures globally, has also cast a shadow over the brand.
As EV sales show signs of weakness, Musk appears to be pivoting Tesla’s focus towards its ambitious Robotaxi service and the development of its Optimus humanoid robots. These ventures, however, place Tesla in highly competitive markets where it currently lacks established business operations and faces formidable rivals with significant technological and market advantages.
In a recent analyst call, Musk announced Tesla’s intention to cease production of its Model S and Model X vehicles, reallocating those manufacturing lines to produce Optimus robots. While these older, luxury models constituted less than 3% of Tesla’s annual deliveries in 2025, this move underscores a broader strategic shift away from traditional auto manufacturing towards new technological frontiers.
**SpaceX: A Dominant Force in Aerospace and Beyond**
In contrast to Tesla’s current challenges, SpaceX enjoys a commanding position in its primary market. As the leading provider of orbital launch services, the company secures lucrative contracts worth billions annually from governmental agencies like NASA and the Department of Defense. Beyond launches, SpaceX operates the Starlink satellite internet constellation, boasting over 9,000 satellites in orbit and serving approximately 9 million customers. The company even manages its own company town, Starbase, Texas, showcasing a unique level of operational control.
The prospect of a SpaceX IPO this year further enhances its strategic advantage, particularly with influential figures like Jared Isaacman, a known business associate and former SpaceX investor, now leading NASA.
The recently announced merger values SpaceX at $1 trillion and xAI at $250 billion, according to internal documents. This follows a previous consolidation last year where xAI acquired the social media platform X (formerly Twitter) in a stock-based transaction. This interconnected network of companies has been colloquially termed the “Muskonomy” by a loyal following of fans, institutional investors, and retail shareholders who have invested in Tesla through platforms like Robinhood.
Musk’s stated rationale for the SpaceX-xAI integration is to establish data centers in space, thereby circumventing perceived energy limitations on Earth. However, analysts at Moffett Nathanson have cautioned that the ambitious orbital data center initiative, as outlined in a Federal Communications Commission filing, would require “simply enormous” capital investment. The plan to potentially launch up to one million satellites presents significant logistical and financial hurdles.
“At a bare minimum, one can safely conclude that a full-fledged build is not happening anytime soon, given the requisite operational maturity, supply chain development, and financial requirements,” the analysts noted. Achieving this vision would necessitate the development of novel technological solutions for managing radiation and cooling in space, in addition to the substantial costs associated with launching and assembling vast quantities of heavy equipment.
**Navigating Political and Regulatory Headwinds**
Despite SpaceX’s considerable valuation, placing it among the top eight most valuable U.S. companies, the merger with xAI introduces potential complexities for shareholders. Beyond the redirection of SpaceX profits to fund xAI’s substantial infrastructure needs, the combined entity faces a landscape fraught with legal risks and regulatory scrutiny.
xAI is currently under investigation in multiple jurisdictions, including Europe, India, and Malaysia, as well as by the California Attorney General’s office in the U.S. These investigations were prompted by instances where its Grok image generator produced and disseminated explicit “deepfake” imagery involving minors and women. Adding to these concerns, French investigators recently raided X’s offices, and Musk was summoned by prosecutors to address allegations of algorithmic abuse. Musk has publicly characterized these actions as a “political attack.”
According to Eric Talley, a law professor at Columbia University, the regulatory risks associated with xAI could spill over to SpaceX investors. While SpaceX’s defense contracts are primarily U.S.-based, its Starlink operations have a significant international footprint. Regulatory bodies in various countries may require companies to maintain a clean record across all their operations to operate within their jurisdictions. This means that even if SpaceX subsidiaries do not directly create liabilities for one another, they can collectively impact each other’s “regulatory standing.”
These complications might be manageable for Musk as long as SpaceX remains privately held, allowing him to maintain control without the volatility of public markets. However, the question of whether SpaceX can command and sustain a high public market valuation while absorbing these new xAI-related risks presents a significantly different challenge.
In terms of financial performance, SpaceX reportedly generated approximately $15 billion in revenue and $8 billion in profit last year. Tesla, in contrast, reported nearly $95 billion in sales for 2025, with adjusted earnings of about $5 billion – a considerable drop from the previous year.
For Musk to monetize his SpaceX holdings, the public market would need to embrace its ambitious valuation. Tesla shareholders have a vested interest in the success of this consolidation, as the EV maker has committed to investing $2 billion in xAI as part of a recent funding round.
“Tesla’s recent xAI investment is now a SpaceX investment,” noted Ann Lipton, a law professor at the University of Colorado and former corporate and securities lawyer. “The merger is just more proof that Musk is willing to engage in transactions across his empire, but we already knew that.”
For Tesla investors concerned about Musk’s divided attention, the potential for a substantial long-term payout from SpaceX’s future endeavors might serve as an incentive for him to remain focused. Musk’s compensation package, approved by shareholders last November, includes 12 tranches of stock contingent upon Tesla achieving specific market cap and operational milestones over the next decade. The initial tranche vests upon Tesla reaching a market capitalization of $2 trillion, approximately $400 billion above its current valuation.
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