You may have to go back some years to remember the history, but in 2016, Tesla (TSLA) scooped up another Musk-led company called SolarCity. Elon framed the $2.6B deal as a necessary step for “Master Plan, Part Deux,” but Tesla’s (TSLA) Solar Roof would go on to struggle with pricing, production and installation hurdles, and never reached the mass-market scale that was originally promised. A lawsuit eventually ensued that was won by Musk, but something similar might be happening a decade later.
Bigger picture: SolarCity was folded into Tesla Energy, which produced successful and still dominant products, like Powerwall. Strong growth for these battery backup systems was rooted in leveraging the existing customer base of SolarCity—then the largest residential solar installer in the U.S. Tesla (TSLA) also gained a vast distribution network, engineering talent, and inverter designs, helping it become the end-to-end sustainable energy company it is today.
A similar integration is now taking place. Musk just announced that SpaceX (SPACE) would acquire another one of his companies, xAI (X.AI). The price tags are a lot higher this time around – with SpaceX valued at $1T and xAI worth $250B – but the strategy is the same. Musk is looking to unify his company ecosystem once again, benefiting from a conglomerate that would also involve SpaceX subsidiary Starlink for connectivity and internet services.
Zoom out: SolarCity faced a severe liquidity crisis before Tesla (TSLA) acquired it, and xAI has been burning through cash to keep up with the likes of Microsoft-backed (MSFT) OpenAI and Google (GOOGL). Highly profitable SpaceX (SPACE) can bankroll xAI’s (X.AI) massive development costs, while leveraging its assets down the line to fund Musk’s “Orbital AI” vision, where data centers move into space to solve energy and cooling constraints on Earth. It would also cement a record-shattering valuation for the combined company, which is planning to IPO sometime later this year.