Musk calls Tesla-SpaceX merger a ‘good idea’ as SpaceX posts first profit as a public company

By Akash Sriram and Joey Roulette

Oct. 20 (Reuters) – Elon Musk said on Tuesday that merging his two companies, SpaceX and Tesla, would be “a good idea.” He said special committees had been formed at both companies to discuss joining them. The news sent shares of the space and technology company up 4.9% in trading after the regular market closed.

Earlier, the company reported its first profit as a public company. Musk also said its current business growth pointed to yearly revenue of up to $1 trillion.

Musk has hinted at the idea of a merger to shareholders before, pointing to the growing connections between the two companies. Talk of SpaceX buying the electric vehicle maker has grown recently. Last week, Barclays said a deal could be announced before Tesla’s annual meeting in December.

“I think it would be a good idea, but it’s really up to the special committees of both companies,” Musk said. This was the first official confirmation that the companies were formally discussing a merger. “Because I’m a conflicted party, I can’t actually be in the discussion of the special committees,” he told investors during a conference call. He added that shareholders would ultimately have to approve any deal.

SpaceX’s revenue rose 161% to $14.58 billion in the three months ending September 30, compared with the same period a year earlier. Revenue from artificial intelligence (AI) grew almost tenfold to $7.56 billion. Most of this money came from renting computing capacity in data centers to developers such as Anthropic, Google, which is owned by Alphabet, and Reflection AI, rather than from SpaceX’s own AI models.

“We are in an inflection moment for SpaceX across launch, connectivity and superintelligence,” Musk said during the call. At the end of his prepared remarks, he added a comment that seemed unscripted: “In a nutshell, what this implies for SpaceX annual recurring revenue by the end of ’27 is somewhere between $500 billion and a trillion.”

The third quarter provided the clearest evidence so far that SpaceX’s large investments in AI are bringing in revenue. However, spending on computing equipment and infrastructure remains huge, with capital spending nearly tripling.

This change is reshaping a company that has long relied on its Starlink internet service as its main source of income. Its future plans still depend heavily on getting Starship rockets into regular use. For now, however, SpaceX’s main business looks more like a cloud computing provider than an AI research company.

AI REVENUE DRIVES SPACEX TRANSFORMATION

SpaceX Chief Financial Officer Bret Johnsen repeated that the company expects its annual recurring revenue to reach about $100 billion by the end of 2026.

He said the company expects to spend $35 billion to $40 billion on capital investments in the fourth quarter. AI accounted for $16.4 billion of SpaceX’s $19.6 billion in capital spending in the third quarter.

“SpaceX delivered the quarter the bulls wanted, at least on the top line,” said Will Rhind, CEO of investment manager GraniteShares. “The story now is all about AI. The compute contracts signed earlier this year are turning into revenue faster than a lot of people thought.”

SpaceX’s AI business includes Grok, the social media platform X, and a rapidly growing data-center operation.

The AI business has recorded large operating losses, and SpaceX has warned that it will need to keep investing for a long time before it can make profits consistently. However, the company made a profit in the third quarter, compared with a loss in the same period a year earlier.

“With AI revenue now the company’s biggest business line, the company’s hyperscale business is quickly providing operating strength and leverage which will carry into the advancements of its satellite and launch business,” said Daniel Newman, CEO of technology research group the Futurum Group. “Increasingly, the strength and diversification of SpaceX makes a merger with Tesla feel imminent.”

SpaceX reported net income, or profit after expenses, of $4.4 billion, compared with a net loss of $1.1 billion a year earlier. Analysts had expected a profit of $1.57 billion. Based on adjusted earnings per share, the company earned 45 cents, according to IBES calculations. This was higher than the average analyst estimate of 13 cents.

STARLINK SUBSCRIBERS TOP FORECASTS

Starlink, SpaceX’s satellite internet service, has continued to add subscribers. Growth has been supported by more satellite launches and a wider range of services for consumers, businesses, airlines, ships and governments.

Starlink had 13.6 million subscribers in the third quarter, more than the 12.19 million analysts had expected. But this growth comes at a cost: average monthly revenue per subscriber fell from $99 in 2023 to $69 in the third quarter as the company expanded into other countries with cheaper plans.

The company has said that expanding into countries beyond the wealthiest markets could cause average revenue per user to fall further over time.

Starship, SpaceX’s next-generation reusable rocket system, has not yet begun commercial service. It is expected to help the company launch more advanced Starlink satellites that can carry more data, as well as computing systems for AI in space. SpaceX’s long-term plans depend on its ability to make Starship a rocket that can be reused reliably.

Last month, SpaceX successfully deployed several Starlink satellites during Starship’s first test flight into orbit. The flight ended hours earlier than planned because of an engine problem.

SpaceX’s space business includes commercial rocket launches, government missions and Starship development. These activities remain a major source of costs and uncertainty.

Falcon rocket launches have remained strong, but revenue can change depending on the balance between launches for SpaceX’s own Starlink satellites, missions for commercial customers and government contracts.

SpaceX has increasingly given priority to launching satellites for its own network rather than carrying payloads for outside customers. At the same time, it continues to pay significant costs to develop Starship.

(Reporting by Akash Sriram in Bengaluru and Joey Roulette in Washington; Additional reporting by Max A. Cherney and Aditya Soni; Writing by Sayantani Ghosh; Editing by Pooja Desai and Matthew Lewis)