Why Elon Musk picked SpaceX over Tesla for xAI merger

Elon Musk has officially consolidated his artificial intelligence venture, xAI, with SpaceX, creating a combined entity valued at a staggering $1.25 trillion. This monumental deal officially sets a new record as the world’s largest merger and acquisition (M&A) in history.

But, the question most have on their mind is why Musk chose to merge SpaceX with xAI and not Tesla?

The logistics of the $1.25 trillion ‘Muskonomy’

According to the Reuters report, the transaction values SpaceX at $1 trillion and xAI at $250 billion. Under the terms of the agreement, xAI investors will receive 0.1433 shares of SpaceX for every share of xAI they hold. This merger effectively unifies Musk's most ambitious projects: rockets, satellite-based internet (Starlink), social media (X), and advanced AI (Grok). All under a single, vertically integrated roof.

Why Tesla was ‘snubbed’

While speculation previously suggested a potential merger with Tesla, Musk’s decision to choose SpaceX appears driven by the immense physical requirements of next-generation AI. 

Reuters highlights that Musk has asserted that terrestrial solutions for AI's burgeoning energy demands are increasingly unsustainable. He contends that space-based data centres, powered by solar energy and unconstrained by Earth's cooling and power limitations, are the only viable way to scale sentient-level AI. 

In simple words, the Sun’s unlimited energy and space’s freezing cold temperatures would provide an ideal environment for AI data centres. 

By combining xAI with his rocket and satellite company, Musk aims to create what he describes as the "most ambitious, vertically-integrated innovation engine" on and off Earth. 

“Current advances in AI are dependent on large terrestrial data centres, which require immense amounts of power and cooling. Global electricity demand for AI simply cannot be met with terrestrial solutions, even in the near term, without imposing hardship on communities and the environment,” said Elon Musk in a SpaceX memo dated 2 February.

The Reuters report also notes that the merger allows for the direct application of AI to SpaceX's complex engineering and navigational challenges, further distancing the project from the automotive-focused constraints of Tesla.

Strategic IPO positioning and valuation

The merger comes just as SpaceX prepares for a blockbuster public offering later this year. Reportedly, this move could see the company’s valuation climb past $1.5 trillion post-IPO. By absorbing xAI now, SpaceX becomes an AI powerhouse before hitting the public markets, significantly enhancing its appeal to potential investors.

A new chapter for human consciousness

In true Musk fashion, the billionaire has framed the acquisition as more than a mere business deal. "This marks not just the next chapter, but the next book in SpaceX and xAI's mission," he stated, describing the ultimate goal as "scaling to make a sentient sun to understand the Universe and extend the light of consciousness to the stars."

Musk ended his memo saying, “The capabilities we unlock by making space-based data centres a reality will fund and enable self-growing bases on the Moon, an entire civilisation on Mars and ultimately expansion to the Universe. Thank you for everything you have done and will do for the light cone of consciousness”. 

Regulatory and security hurdles

Despite the record-breaking nature of the deal, it is expected to face intense scrutiny. Regulators will likely probe the governance, valuation, and potential conflicts of interest inherent in such a massive consolidation. Furthermore, SpaceX’s multi-billion-dollar federal contracts with NASA and the US Department of Defence mean that national security agencies will be required to review the transaction for potential risks to state-funded aerospace infrastructure.