How Elon Musk used SpaceX to rescue xAI and build a $1.25tn colossus

{"text":[[{"start":16.43,"text":"Elon Musk pulled off one of the most audacious deals of his career on Monday, merging SpaceX with xAI to create the most valuable private company in history."}],[{"start":28.42,"text":"The $1.25tn merger combines the billionaire’s dominant rocket maker with his lossmaking AI start-up and social media network X. "}],[{"start":38.660000000000004,"text":"Musk said the move was needed to launch data centres into space, build factories on the moon and colonise Mars."}],[{"start":47.440000000000005,"text":"Supporters have praised the tie-up as further evidence of his genius, taking advantage of his reusable rockets and Starlink network of satellites, combined with the data from X and models from xAI."}],[{"start":61.18000000000001,"text":"His critics see it as the latest example of financial engineering, using his personal brand and SpaceX to prop up xAI as it burns through $1bn of cash a month."}],[{"start":74.11000000000001,"text":"“None of the valuations are based on any rational multiple,” said one person who has invested in xAI. “They’re all trading off Elon.”"}],[{"start":84.04000000000002,"text":"A merger had been rumoured since SpaceX invested $2bn in xAI in the summer. Still, when news of formal negotiations started to leak last week, most shareholders were kept in the dark and were blindsided by the speed with which the deal closed, multiple people told the FT."}],[{"start":104.34000000000002,"text":"Investors were briefed on hurried calls by SpaceX financial chief Bret Johnsen and xAI’s Jared Birchall. After delays and poor audio quality, many struggled to hear the scant details about the $1.25tn tie-up."}],[{"start":121.53000000000002,"text":"Johnsen told them that SpaceX would buy xAI for $250bn, matching the price of a recent $20bn funding round that valued the two-year-old start-up at $230bn."}],[{"start":null,"text":"

"}],[{"start":135.71,"text":"Shares of xAI will be converted into SpaceX stock at an exchange rate of roughly seven to one, with stock in the combined entity priced at $527."}],[{"start":147.26000000000002,"text":"Musk had also marked up the private valuation of SpaceX to $1tn, citing increases in revenue from its Starlink broadband service, $200bn more than the company was valued at in December for a secondary stock sale."}],[{"start":163.69000000000003,"text":"Birchall said on his call that Musk would run the combined entity, the deal would close on March 16 and investors would have the option to cash out rather than swap their xAI stock for that of SpaceX."}],[{"start":177.98000000000002,"text":"“This merger is a testament to great engineering. Space, data centres, solar power,” said Sol Bier, founder of Factorial Funds, which has invested in both companies. “Looking back, those are discrete businesses. Looking ahead, they’re on a collision course. AI’s bottleneck is energy and Elon just vertically integrated the solution.”"}],[{"start":null,"text":""}],[{"start":201.52,"text":"The Musk lieutenants also confirmed that SpaceX was still aiming for an initial public offering in June — a date Musk has pushed for because of a rare alignment of the planets Jupiter, Venus and Mercury that month."}],[{"start":215.81,"text":"The SpaceX IPO could raise as much as $50bn, which would make it the largest flotation of all time, exceeding the $29bn raised by Saudi Aramco in 2019."}],[{"start":229.81,"text":"Investors believe that the rapid timeline is less to do with celestial conjugations and more about Musk’s desire to beat OpenAI and Anthropic to the public markets."}],[{"start":242.3,"text":"Both rival AI start-ups are in talks with advisers to go public this year and boast more advanced models than xAI that generate greater revenue. However, bankers fear that there may not be enough cash in the public markets to shoulder all three at once, giving the first mover the advantage."}],[{"start":null,"text":""}],[{"start":262.94,"text":"Some long-term SpaceX investors harbour wider concerns, believing that combining with the heavily lossmaking xAI will complicate or even imperil an IPO. To pay for the transaction, SpaceX will issue $250bn in new shares, diluting the holdings of existing owners."}],[{"start":283.73,"text":"However, as Musk controls both private companies there is little anyone can do to stop him."}],[{"start":290.76,"text":"SpaceX told investors that its annual revenue had grown to $16bn, driven by its monopoly on commercial rocket launches and a surge in subscriptions to Starlink. Last week, the company asked regulators for permission to launch 1mn satellites to create an “orbital data centre system”, up from 9,400 currently."}],[{"start":null,"text":""}],[{"start":314.78999999999996,"text":"By contrast, last year xAI’s revenue was in the low hundreds of millions of dollars. The group recently warned that it might spend more than $10bn in 2025 to buy chips and construct the vast data centres needed to train and run advanced AI systems."}],[{"start":334.87999999999994,"text":"“It’s a win for both, but net a bigger win for xAI shareholders — on its own, xAI is not that good . . . Google and OpenAI are dominating with consumers, Anthropic with enterprise [customers],” said an investor in Musk’s AI start-up. "}],[{"start":353.7699999999999,"text":"“So the reality is there wasn’t a choice, he couldn’t leave xAI alone,” he added. “He’s a genius, this would have been the plan all along.”"}],[{"start":365.49999999999994,"text":"Investors are now speculating about an eventual merger with Tesla after the electric vehicle maker announced its own $2bn investment in xAI last week and pivoted strategy further towards AI chips and humanoid robots."}],[{"start":381.19999999999993,"text":"Musk has a history of forcing through controversial corporate actions. "}],[{"start":386.2899999999999,"text":"In 2016, he used Tesla stock to acquire struggling SolarCity, brushing off governance concerns that he was the largest shareholder and his cousin was chief executive. The deal went through after almost eight years of litigation."}],[{"start":402.8799999999999,"text":"“I lived through this at Tesla and SolarCity, the latter company was happy as they did amazingly well out of it,” said one shareholder. “There were years of lawsuits, but this is stuff that Elon is good at. He makes people money.”"}],[{"start":419.5699999999999,"text":"Musk has twice persuaded the Tesla board — which includes his brother Kimbal and several of his most loyal investors such as Valor Equity Partners’ Antonio Gracias — to authorise record-breaking pay packages. The most recent is potentially worth $1tn."}],[{"start":437.5699999999999,"text":"One person who knows Musk said the decision to acquire xAI for $250bn was largely “on the basis of his desire to treat his investors well”, rather than the start-up’s performance. Musk had developed a “cult following” from investors whose access to deals is premised on loyalty: “If you miss one deal you’re out forever.”"}],[{"start":460.8199999999999,"text":"High-profile venture firms, including Sequoia Capital, Andreessen Horowitz, Vy Capital and Valor, are among Musk’s most prolific backers and own stakes in both companies. "}],[{"start":473.95999999999987,"text":"SpaceX investors would be diluted as part of the acquisition, added the investor, “but if you’re diluting yourself, it’s not too bad.” "}],[{"start":483.2599999999999,"text":"Meanwhile, xAI backers, including sovereign funds Qatar Investment Authority and MGX, and investment funds Baron Capital Group and Goanna Capital, stand to make a quick return on the AI group, which was founded in 2023. "}],[{"start":null,"text":""}],[{"start":501.0499999999999,"text":"Many of those also backed Musk’s $44bn takeover of Twitter in October 2022. While initially revenue collapsed and many wrote down the paper value of the equity and debt, last March Musk used xAI to buy Twitter, since rebranded X, pricing the combined entity at $113bn and protecting staff, investors and banks from losses."}],[{"start":529.9399999999999,"text":"Those investors have had to deal with multiple controversies. xAI’s chatbot Grok has also repeatedly caused scandals for the company, from producing antisemitic posts, praising Hitler and most recently allowing its picture generator to create sexually explicit images of women and minors."}],[{"start":551.67,"text":"One former Musk executive said that the SpaceX deal meant some early Twitter staff had doubled or even tripled the value of their equity. Another former xAI executive said those employees would probably “suddenly [be] feeling like the crazy was all worth it . . . maybe”."}],[{"start":568.31,"text":"The merger also reflects Musk’s otherworldly ambitions. "}],[{"start":574.4,"text":"Monday’s announcement was peppered with obscure sci-fi references such as the Kardashev scale — a ranking of civilisations based on the amount of solar energy they capture — and a desire to shoot data centres into space from the moon using electromagnetic mass drivers."}],[{"start":592.4,"text":"The purpose of the deal was “scaling to make a sentient sun to understand the Universe and extend the light of consciousness to the stars!” wrote Musk. “Ad Astra!”"}],[{"start":619.33,"text":""}]],"url":"https://audio.ftcn.net.cn/album/a_1770169675_9926.mp3"}