Elon shot: will Musk’s mega-merger work?

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1:14The Economist

1:21Hello and welcome to The Intelligence from The Economist. I'm Jason Palmer. And I'm Rosie Blore. Every weekday, we provide a fresh perspective on the event shaping your world.

1:36Each year, hundreds of millions of Chinese workers return to their hometowns for Lunar New Year. This year, the government issued an unusual warning, telling people not to stay at home for long. We asked what's changed that has the government so spooked. And what should you watch this weekend? I thought our culture editor was very refined until she recommended this extremely steamy TV show. Stay tuned for what you should view and what you shouldn't. And I've been asked to warn you, it gets a bit explicit.

2:15But first...

2:22Sprawling conglomerates had rather fallen out of fashion in America. Then along came Elon Musk. One of the things we'll be doing with SpaceX within a few years is launching solar-powered AI satellites. At Davos last month, his ambitions, as ever, were clearly of a planetary scale. Space is really the source of immense power, and that you don't need to take up any room on Earth. There's so much room in space. Solar-powered AI satellites might sound ludicrous, but this week that vision became more of a possibility. Musk announced that SpaceX would merge with XAI, one of his other companies, which currently makes chatbots.

3:07That deal is worth$1.25 trillion. dollars. Big numbers, big ideas. Question is, will it work?

3:16Economist Podcasts Host:The rationale of the deal is that both companies will work together to launch a fleet of data centers into space. And that would help boost SpaceX rocket and satellite business. And it would also help XAI to generate cheap AI. Henry Trix is our US technology editor. More immediately, though, the deal is no doubt meant to generate excitement about a forthcoming SpaceX IPO, which is going to be one of the biggest public listings of all time. Who knew, Henry, that we would have so many X-rated companies being mentioned on the intelligence all the time? We've talked about SpaceX quite a bit, less so about XAI.

4:08What is it? What does it do?

4:10Economist Podcasts Host:XAI is a company that creates AI chatbots. It's a rival to the likes of OpenAI. Its chatbot Grok is a rival to OpenAI's ChatGPT. We've probably heard less about it because it is a sort of middle-ranking chatbot. It's not as successful as the likes of ChatGPT. And it's also weighed down somewhat by the baggage that came from merging with X, what we used to know as Twitter, last year. So X and XAI are now part of the same company. So what does it mean in practical terms to merge SpaceX and XAI? The merger is aimed at using SpaceX rockets to launch satellites into space that would carry within them AI chips that would then be used to create clusters of data centres in space that would then process artificial intelligence using the kind of cheap energy that you can get from the fact that in space, orbit there is near constant solar power.

5:32Economist Podcasts Host:It sounds like science fiction, but it is kind of plausible. The trouble is that Elon Musk says that his timeline for doing this is two to three years, which, like most of Elon's timelines, is in the realm of fantasy. So if the idea is plausible, why can't it be done this quickly? So there are two types of challenges. There's an economic and an engineering challenge. The economic quandary here is basically between the cost of energy on Earth and the cost of launch to space. And for now, it's still much cheaper to generate electricity on Earth than it is to send up tons of satellites into space.

6:18Economist Podcasts Host:There's also technical issues. Space-based data centres need lots of heavy equipment to cool them. Cooling is a problem up in orbit. It's also unclear whether the sensitive hardware that you need to generate AI, how well these can survive cosmic rays. There are tests that are being done over the next year or two to try and get more clarity. As for the economics, Elon Musk is very confident that Starship, which is his mega rocket, will be able to deliver tons of chip bearing satellites into space. However, Starship is behind schedule and it is not clear when it's going to be able to become the workhorse of the space economy that Elon is hoping it to be.

7:12So what's your take? Is there any way in which this merger makes sense from a money-making perspective?

7:20Economist Podcasts Host:It makes sense, first of all, from the perspective of genning up interest in the IPO. The idea that you can have robots, space colonies all infused by AI and all under the control of Elon Musk really excites retail investors. In the short term, the problem is that you are hitching together a pioneering and profitable space company with a money-losing AI laggard. XAI is burning through cash at the rate of about a billion dollars a month. It's got billions of dollars of debt acquired from when Musk bought Twitter a few years ago to create X. And to add to the burdens, X is under investigation in both the EU and Britain over potential data regulation breaches, including the fact that Grok has an image generator which is widely used to produce deep fakes, including reportedly of children.

8:35Economist Podcasts Host:Elon Musk has denied that the company has done anything wrong. But if XAI is found guilty, then it burdens SpaceX with the potential for really big fines, and not to mention the reputational damage to a firm that relies on government contracts for a lot of its business. And there's an additional worry here, and that is that this is personal. Elon Musk has an intense rivalry with Sam Altman, who is the boss of OpenAI, ex-AI's big rival. Elon and Sam basically established OpenAI together and then parted ways, and it's become very acrimonious. And the sense that Elon is doing whatever he can to try and beat Altman and open AI in the race towards the latest and the best AI models.

9:31Economist Podcasts Host:But that is somewhat sullying the more profitable and really exciting part of his empire, which is space. Henry, we've already seen Tesla take a bit of a hit from Elon Musk's political reputation. How much is that a risk when it comes to this kind of merger and this company? It's important in the sense that SpaceX is hugely dependent upon government contracts. And if the political wins go against Musk, then it will be harder for the company to get those kind of contracts, space, military and other contracts that it requires. But one of the reasons why SpaceX is going public is probably to try and insulate it from the Musk risk.

10:27Henry, thank you so much for talking to me.

10:30Economist Podcasts Host:Brilliant talking to you, Rosie.

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11:53The single biggest movement of humanity happens every year in China, as workers near the coasts spread out across the country returning home for Lunar New Year. Ahead of this year's onslaught of planes, trains, and automobiles, the Rural Affairs Ministry issued an unusual warning that the government must make sure not too many of those workers stick around at home after the holiday. That hasn't traditionally been a concern. To find out whether it ought to be one now, our Beijing Bureau Chief Simon Rabinovich did some traveling. So given the government's warnings, I thought it would be interesting to visit a couple of places that in recent decades have been big sources for outbound migration.

12:34So I went to Zhoukou in Henan province and Tianmen in Hubei. And I went to areas in those cities where migrants tend to gather, the train stations when they're coming back from the cities, the shops, some of the job centres. And you could see it was a month ahead of the Lunar New Year. There were some signs of people coming back early.

13:01I met a 60-year-old man by the name of Mr. Zhao. He was standing in front of a railway station. He had just arrived back from the city of Nanjing. He'd been working there for 10 months, basically laying tiles, working on construction sites. And he looked like migrant workers have looked for years in China, with a big overstuffed suitcase, a white bucket for carrying tools. And he said that he really was feeling the sharp end of the economic downturn in China. There were no more jobs for him. His monthly income was basically half of what it had been a few years ago. And so he was back early in Joko.

13:36There was no real alternative. He did say after the holidays, he was planning to go back to Nanjing, but he had to wait until there was at least some assurance that the economy was improving. I would say that he was a relatively isolated example. There were a few others like him, but there certainly wasn't a flood of workers streaming back either to Tiananmen or to Joko. So it was not at all like the scenes that, for example, were witnessed in 2008 during the global financial crisis, when basically overnight tens of millions of migrants went back to the countryside from the cities. The government's stated concerns seem quite overblown.

14:15On balance, jobs and opportunities are still primarily in cities, and so most migrants will head back to cities from the countryside after the Lunar New Year. Having said that, there really is an attitude shift amongst migrant workers. And I think for officials who are gunning for strong economic growth, it's that shift that's actually more troubling. And so how does that explain the concerns that they have this time around? Well, so I think what it does is it illuminates that clearly times have changed. And so I think there's two crucial differences. One is the downturn is very different. 2008 was a sudden shock to the system.

14:55people thrown out of work overnight. This time around, China is dealing with a years-long downshift, one that feels more permanent. The property sector has been in a correction for the last five years. That's reduced the construction jobs that historically have really absorbed a lot of migrants. So it's not so much a sudden flood back to the countryside, but a persistent trickle back. And at the same time, the idea that the countryside provides a safety valve, that is less true today than it was 15 years ago. Many rural citizens, including Mr. Zhao, who I spoke to, have leased their land use rights, and so they no longer have land that they can work.

15:37So the government's real underlying concern isn't this sudden rush of people back to the countryside, but the idea that little by little people are heading back because the jobs in the city simply aren't what they used to be, and that when they get back to the countryside, they basically end up languishing there. And so if the government is across this problem enough to be issuing these warnings, what else is it doing to sort of even things out for migrant workers? So I think we can identify a few different strands to the response at the macro level. Although there's not a big stimulus as there had been in the past, they don't have the fiscal space for that.

16:12There is still ongoing investment in infrastructure. This year there's a big push to spend on waterworks. The hope is that will generate jobs for migrant workers. You then have another central government push that's been picked up by provinces, which is to invest a lot in rural areas to attract migrants who have capital and skills to come back to invest in factories. So the second place that I went to Tianmen in Hubei, you can see that historically a lot of migrants had left there, gone to the south of the country to work in garment factories. Over the past number of years, a number of garment factories have been opened up locally so there are some job options for people who returned to Tiananmen that didn't used to exist and the third response which is a very very local one is that you see places that are having migrant workers coming back trying to set up job centers for them the problem there is that although the government is very well-intentioned and they're trying to match people with jobs there simply are not enough jobs available if you begin to have thousands upon thousands of migrants returning to these small towns.

17:19What about the concerns, though, of the migrant workers themselves? You said there was this attitude shift. That's right. And it really is a generational divide. Many of the migrants that you still see traveling across provincial borders, going for work in factories, doing the kinds of jobs that historically have been associated with migrants, many of them are actually older migrants. younger migrants they are more interested in work-life balance many of them are working in the service sector and restaurants or as delivery drivers not necessarily in factories and for them the economic slowdown has really presented this unfamiliar dilemma which is that there still is this temptation to move to big cities that are far away because that's where pay is better that's where there are more jobs.

18:07But given the downturn in China, the prospects in those big cities are not as good as they once were. Meanwhile, back home, there's a recognition that there's more to life than work alone.

18:22One guy who I spoke with, He Gaoqiang, he's in his early 30s. He, six, seven years ago, had traveled farther away for work. Then after his wife had their first child, he decided that he no longer wanted to be so far away from home. Since then, he's been staying in Joko, working in the property sector there. His earnings are way down compared to where they used to be. But his reasoning was that anywhere he was in China, wages would be down. And he had seen what his father had gone through. For decades, his father had been traveling to faraway places to earn a bit more money. But it meant that he basically grew up raised by his grandparents.

19:00and that was not something that he wanted to see his children go through. Thanks very much for joining us, Simon. Thank you, Jason.

19:21I, like millions of people, have been watching He Did Rivalry. Canada, Shane Hollander. Shane Hollander, I wanted to introduce myself. Okay. And Russia's Ilya Rosanoff. You're an awesome player to watch. Yes. It's a Canadian show about two rival hockey players that has gained unexpected popularity worldwide. Alexandra Soichbass, you're our culture editor. I was not quite expecting you to be suggesting something quite so smutty. Tell me what heated rivalry is about. Well, I should say that it takes a lot to shock me. But part of what interested us about this is what a phenomenon it's become. The story is about two rivals who turn lovers.

20:10It is a romance novel that has been adapted into television that's set on the ice and then in the bedroom. They don't hold back on the sex. and some of the scenes as we were trying to decide what to include would probably violate YouTube's terms and policies. But here's one we could use. Touch yourself. What? Show up for me, I want to watch you. You what? It's my special day, Hollander, I want to watch. I've never. No shit. Fuck you. Give me some vodka at least. No, no, no. Vodka is for after as your reward. So as you can see, it's steamy stuff, Rosie. People love the show. Right now, it's the second most in-demand show globally, popular in markets like America, Australia, and the Philippines.

21:02Right, so not really hockey or indeed the ice, it's just the hot stuff. So who's actually watching it? It's popular in the gay community, but perhaps surprisingly, it's also popular among straight women who have been not only watching episodes, but re-watching them. And the effect is not just being felt on streaming networks. It's also being seen in the real world. We've seen a boost to hockey ticket sales. There's a heated rivalry effect where on StubHub, hockey ticket sales surged 40 % since the show's debut in America. We're just about to start the Winter Olympics. So I think hockey is having its moment and it's going to attract more viewers this year.

21:45So Alexandra, you've told me what lots of other people think about it. What did you think? I found it a fascinating window into what's resonating with yours right now. And I think it will feel familiar to people who like romance and dramas. You have a tenderness despite the steamy sex scenes. It's ultimately an emotional story. I think there's a little bit that's on the cloying side. You have lines like, you're so beautiful. And the response being, I can't believe you like me. I think the reason that straight women are enjoying watching the show is also because it deals with the emotions that you would see in a traditional romance.

22:26People are feeling out of place. They're worried about rejection. They're discovering themselves. So there's a relatability to the drama, even though the world of hockey and even the world of gay dating might be foreign to some of the people who are watching it. Romance with a lot of soft porn on the side. You said it, not I. I hope you haven't spent your entire week watching and re-watching Heated Rivalry. What else have you been saying? This has been an interesting week for the release of a long-anticipated documentary called Melania. And of course, we all know her with her last name as well.

23:04It's Melania Trump. Everyone wants to know. So here it is. Is it worth it? Our Lexington columnist, James Bennett, had a really funny take where he said, thank goodness this is not Eva Perón, referring to the first lady of Argentina, who was a populist, extremely approachable and warm. Melania Trump is exactly the opposite. And that is certainly true on screen. She is remote. It's not entirely clear that she even seems comfortable starring in her own documentary. But I think it's one that many people will not enjoy, which is why we have it as a what not to watch this week. But I will say that it was snapped up by Amazon, which was willing to pay three times more than anyone else was willing to for the rights to the documentary.

23:57A stunning$40 million, which is unheard of in the world of documentary. And it's a fascinating window into the current business climate and Hollywood. So we had steamy sex and now we got a bit of ice after all. Alexandra, thank you very much. Always a pleasure, Rosie.

24:31That's all for this episode of The Intelligence. The show's editors are Chris Impey and Jat Gill. Our deputy editor is Sarah Larniuk and our sound designer is Will Rowe. Our senior producers are Henrietta McFarlane and Alizé Jean-Baptiste and our senior creative producer is William Warren. Our producers are Anne Hanna and Jonathan Day and our assistant producer is Kunal Patel with extra production help this week from Emily Elias. The Weekend Intelligence is taking a break while we bring you the third series of Boss Class, our podcast on the world of work. See you back here for that tomorrow.