A potential merger between Tesla and SpaceX—two companies each valued at over $1 trillion—faces major hurdles regarding valuation, regulatory approval, and cross-border operations, according to former Tesla board member Steve Westly. Speaking to CNBC, the founder and managing partner of The Westly Group warned that assuming a transaction is certain overstates the current reality, even as special committees from both corporate boards evaluate possibilities.
Valuation Ratios and Conflict Governance
Determining an accurate exchange ratio between Tesla and SpaceX presents a central valuation dilemma. Because Elon Musk serves as CEO of both firms, he confirmed during SpaceX's third-quarter webcast that he cannot participate in the independent directors' discussions as a conflicted party. Musk stated, "I think some people out there assume that a SpaceX and Tesla merger is a certainty, and I think that would be overstating it," noting that board committees have not agreed on any terms.
Regulatory clearance poses an additional obstacle. Although Tesla received SEC staff clearance on Sept. 29 for a retail voting program allowing small shareholders to pre-authorize board-aligned votes, Westly stressed that formal SEC approval remains a critical barrier. Similar structural challenges often appear during major tech reorganizations, such as shifts in corporate capital allocation strategy, where board governance and shareholder alignment must align with regulatory standards.
Defense Contracting vs. Shanghai Manufacturing
The primary geopolitical bottleneck involves Tesla's facility in Shanghai, which historically supplies over half of the automaker's global vehicle deliveries. Conversely, SpaceX derived approximately one-fifth of its 2025 revenue from US federal agencies, according to a Reuters report. Combining a primary US defense contractor with an entity heavily operational in China introduces severe national security reviews in Washington and Beijing.
JPMorgan analysts flagged regulatory approvals in China as a key bottleneck for the deal. While The Wall Street Journal reported in July that Tesla executives were advised to prepare for a potential separation of its China business—a report Musk rejected—navigating regulatory scrutiny amid broader market pressures, such as ongoing volatility in Asian equity markets, remains difficult. Meanwhile, CNBC reported that Tesla's automotive revenue fell 3% year over year in the third quarter, increasing pressure on the company to demonstrate growth beyond vehicle manufacturing.
Key Takeaways
- Three Primary Barriers: Steve Westly cited valuation ratios, regulatory approvals, and Tesla's Shanghai plant as the main merger hurdles.
- Musk Recusal: Elon Musk confirmed he is recused from independent special committee talks due to conflicts of interest.
- Geopolitical Split: SpaceX generated about 20% of its 2025 revenue from US federal agencies, while Tesla's Shanghai factory produces over 50% of its vehicles.
- Voting Rights: Tesla secured SEC clearance on Sept. 29 for a retail shareholder voting program, though broader merger approval is still required.
Why It Matters
A combination of two $1 trillion entities controlled by the same founder would test regulatory boundaries surrounding corporate governance, defense contracting, and foreign operational exposure. With Tesla's automotive revenue contracting 3% year over year in Q3, absorbing SpaceX could reshape Tesla's narrative into a diversified technology conglomerate. However, maintaining extensive manufacturing facilities in China alongside sensitive US national security contracts creates an unprecedented regulatory hurdle for both Washington and Beijing.
