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Elon Musk has a long history of rolling up his companies. X.com and Paypal (2000), Solar City and Tesla (2016). xAI and X.com (2025) and SpaceX and xAI in February of this year.
For nearly a decade, Elon has insisted that there was “not a strong rationale” to merge Tesla with SpaceX. But in November we started to hear a different tune. “My companies are, surprisingly in some ways, trending towards convergence” Elon posted in November of 2025.
Will 2027 be the year of the Elon giga-merger?
The quest for AI compute has been the main driver of this “convergence.”
Elon understands the problem that memory output is growing 20% annually but demand is growing at 200%. He can’t buy chips fast enough and the only way out is to leverage the resources of his other controlled entities.
To run AI at scale, three things are needed: power, silicon and a model. SpaceX has the model and GPUs while Tesla holds the energy storage and designs inference chips.
6th August 2026, we got news of the closest collaboration yet between the two companies: the Terafab chip plant, to which both firms committed $16.8b. Yet The Tesla-SpaceX merger odds on Polymarket barely moved on the news.
What moves the odds?
Before the SpaceX IPO, movement in the odds were mainly driven by speculation. Post SpaceX IPO, the odds were driven by the relative performance of Tesla’s and SpaceX’s share prices. A stronger Tesla makes the acquisition more expensive for SpaceX. A weaker SpaceX valuation reduces the attractiveness of using its stock as a currency given it dilutes existing SpaceX shareholders.
All in on AI
Both earnings transcripts show the firms are reorganizing around AI. Tesla is decommissioning both Model S and Model X lines at Fremont for Optimus. These humanoid robots rely on AI chips to function. SpaceX has already spent $28.5b on capex in the first half of 2026, most of it AI-related.
SpaceX’s earnings report showed that it had ~$93.5b of cash and revenue growing 92% YoY although still loss-making. On the other hand, Tesla is profitable with ~$1.11b net income but has negative free cash flow of $1.09b driven by 142% growth in capex. If they combined their balance sheet, the single entity could fund AI capex internally rather than each trying to raise capital separately.
Moreover, the market has underpriced how Elon operates and his intense desire to build up the required AI capacity. Currently, SpaceX is at 1.4GW of compute and during the Q2 earnings call, Elon suggested a range estimate of up to 10GW compute (approximately 7 times higher) by year end 2027.
Interdependency of the two companies is rising. In the April - June quarter, SpaceX purchased $295m of Megapack high-capacity batteries from Tesla as SpaceX scales its data centre operations. This purchase value already makes up around 60% of Tesla’s 2025 Megapack sales.
In Q2 2026, two customers of SpaceX made up ~38% of consolidated revenue compared to a single client taking up ~17% a year earlier. The revenue from Client B is entirely related to the AI segment. Client B was below the 10% threshold required for reporting but reached 19.5% in the 2nd quarter, indicating the growing importance of AI revenues. A merged entity will carry Tesla’s revenue base and will own Tesla’s AI chip designs, Optimus, and battery hardware that SpaceX has been buying aggressively from Tesla.
The main risk to a possible merger is China. Tesla’s Shanghai plant can produce more than 950k Model 3/Y per year. Combining both entities could expose SpaceX (which holds massive Pentagon contracts for satellite launches) to national security entanglements. This would be a key regulatory hurdle, but it is a deal execution risk rather than an announcement risk considering spinoffs could be a remedy: this polymarket resolves based on an official announcement from SpaceX or Tesla.
Leading indicator
Since the SpaceX IPO, Polymarket merger odds, and the SpaceX / Tesla share price ratio moved together with a strong correlation of +0.71 across 27 trading days. On July 22nd, as Elon ruled out merger talks, that correlation fell to -0.12. The share price ratio has since recovered but the year-end merger odds have not.
There is a good reason why the December 2026 contract stopped repricing: the market has only four months left to resolve and Polymarket traders believe there is not much room for that to show up in the price due to time decay.
However 2027 is a blank canvas. The four contracts (Jan, Feb, June and Dec 2027 strikes) started trading on August 15th. Based on the strong correlation we saw earlier in the year, my view is that the share price ratio can act as a good leading indicator because equities reprice faster than the implied merger odds.
Between Elon’s past rollup history, and the increasing signs of a merger on the horizon, an interesting way to play this would be a relative value trade if there’s any further dislocation between the Polymarket merger odds and the SpaceX/ Tesla share price ratio.
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Disclaimer
Nothing in The Oracle is financial, investment, legal or any other type of professional advice. All odds are time-sensitive and subject to change. Anything provided in any newsletter is for informational purposes only and is not meant to be an endorsement of any type of activity or any particular market or product. Terms of Service on polymarket.com prohibit US persons and persons from certain other jurisdictions from using Polymarket to trade, although data and information is viewable globally.
You left out the part about all your balance sheet accounting problems tend to get fixed in acquisition accounting.
Great content! 👍