Elon Musk’s $3.6tn gamble to merge SpaceX and Tesla

0:00This episode is brought to you by Hard Lessons, a Morgan Stanley podcast. Iconic investors like Stan Druckenmiller, John Gray, and Rick Reeder break down calls that worked. I knew that this stock would go up for at least two or three years and go up a lot. Ones that didn't. I quite frankly thought the company could have reversed course. They didn't. And what they learned in between. When you buy everything and it goes up, it doesn't train you to be a great investor. It's these hard lessons that make all the difference. Listen to Hard Lessons wherever you get your podcasts.

0:32Good morning from the Financial Times. Today is Thursday, October 22nd, and this is your FT News Briefing. Meta's found a new way to fund its AI projects, and a German media mogul wants TikTok. Plus, what happens if you merge a rocket company with a car company? A lot of these industries of the future would be in the hands of this new SpaceX-Tesla conglomerate and under Musk's control. I'm Mark Filippino, and here's the news you need to start your day.

1:10Meta plans to create a new class of non-voting shares. That'll allow it to fund its AI spending without diluting CEO Mark Zuckerberg's control of the company. Zuckerberg has about 61 % of Meta's votes through super voting shares. If the company started issuing more ordinary stock, that control would slowly erode. The non-voting shares will begin trading in January. It comes as Meta reported quarterly earnings yesterday. Its revenue rose 26 % year-on-year in the third quarter, as Zuckerberg continues to pour a ton of money into making Meta a leading AI company. Meta's share price rose in after-hours trading.

1:54TikTok is a hot commodity. We've seen a lot of bids to buy different arms of the Chinese-owned social media app recently, and one of Europe's top media moguls has shown interest. His name is Matthias Duffner. His German company, Axel Springer, owns Politico and the UK's Daily Telegraph. And he has a quite politically charged pitch to buy TikTok's European arm. The FT's Laura Patel is in Berlin. With more, she broke this story. Hi, Laura. Hi, Mark. So Laura, what do we know about Dufner's pitch to buy TikTok's European business? So Dufner has been a critic of TikTok and its operations in Europe for a long time.

2:34He's a critic of China, whose ByteDance obviously owns it. And he has said for some time that he thinks it should be hived off. We had this deal last year in the US to do something similar because of US national security concerns about TikTok. and a bunch of investors, including Larry Ellison's Oracle, bought into a joint venture with ByteDance and took over, at least partly, the U.S. operations of TikTok. And so Dupner has been pitching a similar arrangement here in the EU. And we knew for some time that he thought that that was a good idea. We didn't know that he wanted to buy into it himself and be one of the investors.

3:08And that's what I learned. Well, tell me a little bit more about Dupner. Why does he want to have a piece of TikTok, aside from the fact that he thinks it's not being run well in Europe? He's a very interesting character. He started out as a music journalist. Then he became the chief executive of the German broadsheet Die Welt, which is owned by Axel Springer. And then he became the CEO. And now he also co-owns the company. And on top of that, he's really expanded it beyond Germany. He tried to buy the Financial Times in 2015. That didn't work out, but he bought Business Insider. Then he bought Politico.

3:38And then this year, he surprised everybody by buying the Daily Telegraph in the UK. He also, I have to say, once in 2022, suggested to Elon Musk that Musk should buy Twitter and Dertfner should run it. So this is an idea he's kind of tried out before. Okay, so he's a bit of a media collector. Where does his bid for TikTok stand now? Well, I learned that in January, Dertfner invited Charles Kushner to lunch. So Charles Kushner has two hats. He's the US ambassador to Paris, and he's also the father of Jared Kushner, Donald Trump's son-in-law. So he's very deeply intertwined in the Trump administration.

4:14and the kind of nominal reason for this lunch was a discussion about anti-Semitism and social media platforms. So he invited him and a bunch of other people for a discussion over lunch in Berlin. But at this lunch, he also raised this idea of hiving off European TikTok and also buying a stake in it himself. And this discussion, you know, reached people at TikTok. It also reached people at the European Commission. European regulators were not very keen on the idea and the same went for ByteDance. So as far as I understand for now, the idea has been dropped or parked. What does this tell you more largely about Duffner's efforts as a media mogul?

4:51I think it tells you two things. I think it tells you how ambitious he is. He just keeps going with acquisitions and expansion. And I think it also tells you about his desire to get close to the Trump administration. I mean, this is just the latest in a long line of examples. He was very friendly with U.S. Ambassador to Berlin Rick Grinnell during the first Trump administration. More recently, he had a meeting earlier this year with Susie Wiles, the chief of staff to Donald Trump. And then last month in September, he also invited Peter Thiel, the billionaire tech investor, co-founder of PayPal and Palantir.

5:26He was obviously famously a very early backer of Donald Trump. He gave him an award at Axel Springer last month, which was very controversial here in Germany. And so being in the Trump orbit is something that Dufner is definitely interested in. Laura Patel is the FT's Berlin correspondent. Thanks so much, Laura. Thanks, Mark. And we should say Axel Springer said that if Europe did follow America's model for TikTok, it would have, quote, welcomed the opportunity to be part of it as a major European media player. The U.S. Embassy in Paris declined to comment, and ByteDance did not immediately respond to requests for comment.

6:07Tesla saw weakening sales in its car and energy storage businesses. The company reported third-quarter earnings yesterday. There was a slowdown in the number of people buying electric vehicles. The flat results come at an interesting time. Musk wants to combine Tesla with his rocket company SpaceX. He says both groups are actively exploring a merger. He thinks it's a great idea, but it faces some serious hurdles. Here to tell us what it would take to get it across the finish line is the FT's Ryan McMurrow. Hey, Ryan. Hey there. Thanks for having me on. Good to have you. So Musk himself has cautioned that this merger may not happen, but if it did, what exactly would the combined company look like?

6:47Basically, we'll be left with a single company, more like a tech conglomerate, spanning rockets, satellites, internet service, chatbots, social media, some robots that he's trying to get going, and of course, the Tesla cars. A lot of these industries of the future would be in the hands of this new SpaceX-Tesla conglomerate and under Musk control. At current prices, the combined group would be worth about$3.6 trillion. So it would rank among the world's five most valuable companies alongside NVIDIA, Apple, Alphabet, and Microsoft. It would have about 150 ,000 employees and about$150 billion in revenue.

7:30It would be a massive deal. What about Musk's involvement in the companies? What would a merger mean for that? Well, it would do a lot for consolidating his grip on Tesla. At SpaceX, he controls about 84 % of the votes through these super voting shares. But at Tesla, which has been a big problem for him over the past decade, he only controls about 20%. And there's no super voting shares there. This obviously seems like a good thing for Musk. But even he conceded on the SpaceX earnings call this week that it might not happen. What are some of the hurdles that this deal faces? So the first hurdle that Musk is going to have to get past is getting approval from Tesla shareholders.

8:11He said on Tuesday he would need a majority vote by all shareholders of Tesla in favor of the deal. But that's really just the first hurdle. After that, it would face regulatory scrutiny all around the world. He's not loved very much in Europe where antitrust regulators would probably scrutinize it. But also, especially in China, where Tesla has about one-fourth of its business. and officials in Beijing have always been very wary of Starlink and SpaceX because it's a U.S. defense contractor. Analyst at J.P. Morgan wrote that Tesla might need to ring fence his China business or hand control of it to a Chinese consortium, similar to how TikTok has handed off its U.S.

8:57operations to American investors. Ryan, given all this, do we have a sense of whether this deal is actually going to go forward? Well, that's a good question. He certainly faces a tall task in getting it done, but it seems like one that he has slowly been making his way towards for years. All of the directors involved on both sides are very close to him and will probably find a way to get it done. I guess the largest obstacle is the regulatory obstacle, which he's going to have to get done before Trump leaves office. Ryan McMurrow is the FT's West Coast Finance Correspondent. Thanks so much, Ryan.

9:34Thanks for having me on, Mark.

10:04towards Putin as America tries to end Moscow's full-scale invasion of Ukraine. This is alarming Kiev and its European allies. Wyckoff met Ukrainian President Volodymyr Zelensky in Oslo earlier this week. The Kremlin also released a jailed American citizen during Wyckoff's visit. Stephen Hubbard is a retired schoolteacher who's been detained for more than four years. He was captured by Russian forces while living in eastern Ukraine.

10:36Before you go, on top of everything else happening in the world, buffalo mozzarella production is getting shredded. There's a trucker strike happening in Italy that's disrupted milk deliveries in the South. That's caused the country to experience a shortage of buffalo mozzarella. Truckers are feeling stretched over the high price of fuel, and the protests aren't just hitting cheese. Tomato farmers and pasta makers are complaining that deliveries aren't reaching them in time, too. So if you're a foodie in Italy right now, you might experience a menu that's just a little thinner than normal. You can read more on all these stories for free when you click the links in our show notes.

11:14This has been your daily FT News Briefing. Check back tomorrow for the latest business news.

11:34For years, credit scores were generated with just a snapshot. A snapshot that left millions of people out of the picture. So VantageScore is modernizing the credit score. VantageScore uses 400 % more credit report and alternative data than legacy models, bringing more people into the credit economy. Like 5 million more mortgage-eligible people. Banks win and francs win. Lenders win and so do lenders. When you build credit scores the right way, everybody wins. Get started at VantageScore.com.

12:32Thank you.