The Musk Empire's Bold Move: SpaceX's Rise and Tesla's Woes
Elon Musk's empire is undergoing a seismic shift. As the iconic entrepreneur waves to the crowd at the World Economic Forum in Davos, Switzerland, his latest move is turning heads and sparking debates. Musk's decision to merge SpaceX with his AI venture, xAI, has sent shockwaves through the business world, especially as SpaceX's valuation now rivals Tesla's, a company synonymous with Musk's success.
But here's where it gets intriguing: Tesla, the electric vehicle giant, has been Musk's golden goose, contributing significantly to his wealth and fame. However, SpaceX's valuation is now within striking distance, reaching $1.25 trillion in the private market, compared to Tesla's $1.58 trillion market cap. This is a remarkable development, considering Musk owns a larger stake in SpaceX (43%) than in Tesla (13%), making SpaceX a substantial part of his paper wealth, which exceeds $852 billion.
And this is the part most people miss: Tesla's dominance is showing signs of strain. The company's stock has dipped 6% in 2026, and vehicle deliveries dropped 16% year-over-year. Revenue fell 3% in 2025, marking its first annual decline. The EV market is becoming increasingly crowded, with Chinese and European competitors gaining ground. Additionally, the elimination of federal tax incentives for EV purchases in the U.S. and Musk's political endeavors, including his association with the Trump administration and far-right figures in Europe, have dented Tesla's brand.
Musk is steering Tesla towards new horizons, focusing on Robotaxi and humanoid robots, but these markets are highly competitive, and Tesla has yet to establish a solid presence. The company is even ending production of its Model S and X vehicles, which accounted for less than 3% of annual deliveries in 2025, to make way for Optimus production.
SpaceX, on the other hand, is soaring. As the leading provider of orbital launch services, it boasts lucrative contracts with NASA and the Department of Defense. SpaceX's Starlink satellite internet service has over 9,000 satellites and 9 million customers, and it even operates its own company town, Starbase, Texas. With an IPO on the horizon and Jared Isaacman, a former SpaceX investor, leading NASA, the company is poised for even greater success.
The merger values SpaceX at a staggering $1 trillion and xAI at $250 billion. This follows xAI's acquisition of the social media platform X (formerly Twitter) in 2025. Musk's fans and institutional backers refer to this interconnected web of companies as the 'Muskonomy'.
Musk's vision for the merger is to develop data centers in space, overcoming Earth's energy constraints. However, analysts from Moffett Nathanson caution that the proposed orbital data center would require an enormous amount of capital, and technical challenges related to radiation and cooling in space remain unsolved.
Controversy looms as the merger faces political headwinds. While SpaceX's valuation is impressive, the deal could bring headaches for shareholders. SpaceX profits may be redirected to fund xAI's infrastructure, and the new company inherits legal and regulatory risks. xAI is under investigation in multiple markets, including Europe, India, and Malaysia, and by the California attorney general in the U.S., due to its Grok image generator's involvement in creating and sharing explicit 'deepfake' images of children and women.
French authorities raided X's offices, and Musk was summoned for questioning. Musk labeled the raid a 'political attack', but legal experts suggest that SpaceX investors may bear some regulatory risks associated with xAI. As SpaceX's Starlink business is international, it could face scrutiny from various regulatory bodies.
As long as SpaceX remains private, Musk can navigate these complexities. However, maintaining a high public market valuation while absorbing xAI-related risks is a challenging prospect. SpaceX's impressive revenue and profit figures ($15 billion and $8 billion, respectively) in 2025 contrast with Tesla's declining sales and earnings ($95 billion and $5 billion, respectively).
Musk's SpaceX holdings could become liquid if Wall Street embraces the company's valuation. Interestingly, Tesla shareholders have a vested interest in SpaceX's success, as Tesla recently invested $2 billion in xAI. Legal experts note that Musk's willingness to engage in transactions across his empire is evident, but the implications are yet to be fully understood.
For Tesla investors concerned about Musk's divided attention, the prospect of a $1 trillion long-term payout may keep him engaged. Musk's pay package, approved by shareholders, includes 12 tranches of shares tied to Tesla's milestones over the next decade, with the first tranche paid out if Tesla reaches a $2 trillion market cap.
The Musk empire's future is a captivating narrative, and the SpaceX-xAI merger is a pivotal chapter. Will SpaceX's rise continue, or will Tesla's struggles impact the empire's trajectory? The debate is sure to spark passionate discussions. What do you think? Is Musk's strategy a brilliant move or a risky gamble?
