Why Elon Musk plans to merge Tesla with xAI
Possible Tesla-xAI merger: What's behind this speculation - and why it's more realistic than many believe.
Elon Musk gave an important two-part interview to CNBC. In it, as in the last analyst call, he dampened expectations for the launch of the Tesla ( TSLA 0.00%↑ ) Robotaxi in a few weeks. Only 10 vehicles will initially be on the road in a limited and secure part of Austin, Texas. Although the test vehicles will not have safety drivers on board from the start, there will be remote operators behind the scenes. This all now sounds very realistic.
Musk also hinted during the interview that a future merger of his start-up xAI with Tesla is not out of the question. I am now convinced that this merger is more than just a thought experiment on his part. In fact, I think it is his apparent plan for the medium-term future of his companies.
What Makes me Think That?
Just a few days ago, Elon Musk assured his fans that he definitely wants to stay at the helm of Tesla for the next 5 years. However, Elon currently has no real control over Tesla, although he is of course the strong man in the company and calls the shots in practice. But after selling a lot of shares to buy Twitter he now owns just under 13% of the electric car manufacturer. That means he could theoretically be forced out of his own company by activist Tesla investors.
Elon has long been trying in vain to gain even more control over Tesla. This is related to his long-term vision for Tesla in the areas of autonomous vehicles and artificial intelligence. He would need 25% of the shares to regain a blocking minority. His original 2018 compensation package, which would have guaranteed him additional stock options, has so far been invalidated by a court. It is unclear what will happen next. In any case, Musk continues to try to expand his influence in the company.
How could he Accomplish this by Merging Tesla with xAI?
Elon Musk currently owns about 54% of xAI Holdings Corp. The company combines his AI company xAI and the social media platform X (formerly Twitter) under one roof. As a reminder: In March 2025, Musk merged xAI and X in an all-stock transaction. This valued xAI at $80 billion and X at $33 billion ($45 billion including $12 billion in debt). As part of the transaction, X's investors received a 25% stake in xAI. A financing round is currently underway in which Musk is seeking to raise $20 billion for xAI at a valuation of more than $120 billion, according to press reports.
Elon has repeatedly emphasized that he does not see Tesla as an automaker, but as an AI and robotics company. His fans are happy to buy that, and investors have so far ignored the fact that Tesla is losing market share as an electric car maker and is far behind competitors like Waymo and Chinese rivals like Baidu in autonomous driving. The question is how much patience investors have with Tesla.
By the end of 2025, it should be clear that Tesla is facing tough years as an independent company and could even slide into the red. So what could be more obvious than combining Elon's AI and robotics efforts into one company?
In the CNBC interview, he openly mentioned that Tesla shareholders would have to approve such a merger. I think Tesla investors would actually celebrate such a plan, especially as the company heads into increasingly troubled waters. Short-term profitability would then no longer play such a major role for the investor community if the new combined company were to play in a completely different league and be recognized by the financial market as a “genuine” AI and robotics company. Elon would simply have elegantly changed the playing field and reached the next level in this game. At least, that's how he might see it.
The Numbers Game for the Tesla xAI Merger
The big question remains how Elon can structure a deal between his own companies so that he ends up with 25% control of the combined company, including Tesla.
The key is to maximize the valuation of xAI compared to Tesla. Elon is currently targeting a valuation of at least $120 billion, and if the AI hype continues for a while, he should be able to raise that next round to get there.
The challenge for Elon: If Tesla is valued at $1 trillion at current prices (340$ per Tesla share), xAI shareholders would receive less than 11% of the combined company at that valuation. Elon's stake in Tesla would then rise from 13% today to 17%, but he would not have reached his target of about 25%.
The situation would be different if Tesla were to lose significant value. This sounds crazy, but it's true. If Tesla were "only" worth 500 billion at the time of the merger, Elon's stake in the merged company would be around 21%.
It would look even better for the world's richest man if he could inflate the valuation of xAI even further in this scenario, say to $240 billion. He would then suddenly own 26% of the combined company in the case of a merger.
How Realistic are such Number Games?
From today's perspective, I would say that a USD +200 billion valuation of xAI is not realistic. But 6 or 12 months ago, I couldn't have imagined that OpenAI would be worth $300 billion by mid-2025. Now we all know it better:
The valuation of xAI depends on whether the AI hype lasts long enough. In addition, Elon Musk has not received a salary from Tesla for 7 years now, as a lawsuit over his compensation package is pending. Sooner or later he will get his payday in the form of more Tesla shares, and I am pretty sure he will end up with the desired 25% of the combined company.
Conclusion
At this point, the merger of Tesla and xAI is just an interesting speculation. However, I think it is quite likely that sooner or later Elon Musk will seek a merger of xAI with Tesla and will be able to push it through.
This could actually be another brilliant move in the best interests of Elon Musk, for whom cementing his own position of power is certainly more important than the temporary valuation of Tesla stock.
Whether he would create a company with a promising future is another question. But at least he could profit from a possible drop in Tesla's share price later in 2025. Maybe such a merger will be the next rabbit he pulls out of his hat when Tesla's stock price is falling again. Perhaps he could then stop the electric car maker's share price from plummeting with even bigger visions for the combined company. In any case, I have no doubt that Tesla shareholders would approve such a merger.
P.S. If you have even more imagination than I do, you can imagine Musk even planning to merge Space X with Tesla and xAI, at least in the longer term. That's beyond my own imagination at the moment, because I can't really see how he could sell such a deal to SpaceX investors. But never say never.
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*Disclaimer: This article is an expression of opinion and does not constitute investment advice. Please read the legal information. The author and/or persons or companies associated with him hold short positions in Tesla stock (as of May 23rd, 2025).