Steve Westly sees valuation, SEC approval, and China complicating Tesla-SpaceX deal

A merger of Tesla and SpaceX, two entities each valued at over $1 trillion, could face complications from valuation, regulatory clearance, and Tesla's activities in China, according to ex-Tesla director Steve Westly.

While Westly, who also leads The Westly Group, anticipates a fast pace from the special committees on both boards, CEO Elon Musk has stated that no terms have been settled upon by these committees.

How to Value a Tesla-SpaceX Merger with Musk on Both Boards?

Valuation was the primary hurdle on the list Westly provided to CNBC. This valuation dictates the exchange ratio, which determines the number of SpaceX shares received for each Tesla share.

As a conflicted participant, Musk is unable to take part in the independent directors' discussions, he mentioned during SpaceX's third-quarter webcast.

"I think some people out there assume that a SpaceX and Tesla merger is a certainty, and I think that would be overstating it."

Elon Musk, chief executive of both Tesla and SpaceX, made these remarks in an interview carried by NBC.

A retail voting program at Tesla, which permits small shareholders to pre-authorize votes aligned with the board, received SEC staff clearance on September 29. Westly indicated this development facilitated a deal, but he still includes SEC approval as one of the obstacles.

Can Tesla Retain Its Shanghai Operations in a Merger with a US Defense Partner?

The third obstacle cited by Westly is China. According to a Reuters report, roughly one-fifth of SpaceX's 2025 revenue came from US government agencies.

This exposure brings national security concerns to the forefront regarding Tesla's Shanghai facility, which has traditionally accounted for more than half of the company's deliveries. Analysts at JPMorgan pointed to regulatory approvals, especially relating to China, as a significant constraint.

In July, The Wall Street Journal reported that Tesla executives received instructions to ready the separation of the firm's China business. Musk, however, dismissed this report.

Westly argued that Tesla needs to demonstrate expansion beyond the automotive sector to bolster its standing as a technology firm. Concurrently, CNBC reported that automotive revenue saw a 3% year-over-year decline in the third quarter.

A finalized agreement would still require the backing of both sets of shareholders, alongside regulatory approvals from Washington and Beijing, according to analysts. The eventual result could illustrate how founder control, retail voting mechanisms, and national security evaluations converge in deals valued at a trillion dollars.