Tesla and xAI to merge? Hedge fund mogul: It feels inevitable

The possibility of a merger between Tesla and the AI startup xAI, owned by Elon Musk, is evolving from market speculation into serious discussion.

On Sunday, Anthony Scaramucci, founder of SkyBridge Capital, posted on social media platform X that as Musk accelerates the integration of AI into his business landscape, the merger between Tesla and xAI "feels inevitable." This statement adds fuel to the already rising expectations of a merger.

Scaramucci's tweet came after news that Tesla shareholders had submitted a formal proposal. According to reports, the proposal urges the Tesla board to authorize an investment in xAI, marking the first time the capital connection between the two companies has been included in the official agenda.

A deeper signal is hidden in Tesla's recent disclosure of Musk's new ten-year compensation plan. Wall Street Journal previously mentioned that according to Morgan Stanley analysis, the plan includes a key clause allowing performance targets to be adjusted in the event of a "significant" acquisition, which is widely interpreted as paving the way for a potential merger with xAI, making the synergy between the two companies a part of Tesla's long-term strategy.

Shareholder Proposal Fuels Merger Expectations

The direct motivation for bundling Tesla with xAI comes from the investors themselves. According to Tesla's proxy statement, 56-year-old investor Stephen Hawk from Florida submitted a shareholder proposal suggesting the company invest in xAI. This proposal will be voted on at the company's annual shareholder meeting on November 6, alongside Musk's controversial compensation plan.

Stephen Hawk stated in an email that his inspiration came from Musk's previous posts on social media hinting at a partnership between the two. He believes that "formally establishing this partnership is crucial to ensuring clear mutual interests."

In fact, Musk himself is open to this idea. He has not only solicited opinions from fans on the X platform but also told investors in July, "We will act according to the wishes of the shareholders." This makes the voting results at the shareholder meeting a potentially key step in determining the future relationship between the two companies.

Musk's New Compensation Plan Hints at Merger Signals

For investors, perhaps more significant than the shareholder proposal is Musk's long-term compensation plan, which could be worth up to $1 trillion.

Earlier this month, Morgan Stanley analysts, including Adam Jonas, pointed out in a research report that the plan aims to alleviate investor concerns about Musk spreading his focus across xAI and SpaceX, among other companies.

The report states that Musk has clearly expressed a desire to hold at least 25% of Tesla's shares to have veto power in any change of control of the company, and the new plan conveniently provides an incentive path for this More importantly, a supplementary clause regarding the acquisition in the proposal has attracted significant market attention. This clause states, “The market capitalization and adjusted EBITDA milestone targets may be adjusted to account for Tesla acquisition activities that are deemed to have a significant impact on the achievement of the milestones.”

Analysts believe that this wording reserves flexible institutional space for the future integration of interests between Tesla and xAI. Morgan Stanley's report explicitly states that this provides a clear "interface" for the merger of the two companies, indicating that such integration has been considered in Tesla's long-term strategic planning.

Tesla's Market Value Expected to Reach $8.5 Trillion

Market expectations for the merger are based on the existing synergies between the two companies.

Musk has always positioned Tesla as a "real-world artificial intelligence" company, with a core focus on driving autonomous driving and the Optimus humanoid robot. The Grok large language model developed by xAI has already been integrated as an AI companion into Optimus and some Tesla vehicles. Additionally, xAI has also procured Tesla's industrial batteries to power its data centers.

Some analysts believe that the merger will unlock tremendous value. Renowned technology analyst and co-founder of Deepwater Asset Management, Gene Munster, suggested earlier this month that the combination of Tesla and xAI could help the former achieve the grand goal of a market value of $8.5 trillion.

Today, this viewpoint is becoming mainstream. Against the backdrop of xAI's own valuation exceeding $100 billion and seeking a valuation of up to $200 billion, how to enable Tesla shareholders to share in the enormous benefits brought by its AI breakthroughs has become a key issue that Musk needs to address