Tesla’s EV Crown Is Gone. Its Autonomy Bet May Need SpaceX

By Rebecca Stone

Five days after Tesla staged a flying Roadster demonstration made possible by compressed-gas thrusters developed by SpaceX, Elon Musk said the companies were exploring a merger to accelerate his push into autonomous driving.

The proposed combination could give Tesla more capital and technical capacity as Chinese electric-vehicle makers gain ground. It would also join a car manufacturer to a rocket company and concentrate risk around Musk’s wider technology ambitions.

“Automakers are starting to look in the mirror and the software piece is what they are all looking at as the golden goose, because the margins are so high,” said Dan Ives, a tech analyst and partner at merchant bank Yorkville Ives.

The wider shift moves automakers from vehicle sales toward recurring software and AI-powered services as Chinese competition grows. Tesla’s car business remains the cash-generating core, producing 75% of total revenue. That revenue base is pivotal to the heavy AI spending Tesla needs to compete with Big Tech rivals.

Why does Tesla need Full Self-Driving to grow?

Musk now faces a different market from 2008, when Tesla launched its first battery-powered Roadster. Chinese rivals are winning the electric-vehicle race while investing heavily in software and AI to challenge established manufacturers in autonomous driving.

Musk’s earlier goal of 20 million vehicle sales a year by 2030 has been reduced to 5 million. Tesla delivered 1.6 million vehicles last year, leaving the revised target demanding after BYD displaced the company as the world’s largest electric-vehicle manufacturer last year.

Musk has nevertheless claimed that Tesla remains ahead of Chinese competitors in autonomous technology. At Wednesday’s earnings briefing, he said:

“The biggest driver for demand is Full Self-Driving. And today, there’s really no competitor for FSD in any car that you can buy.”

Tesla’s latest operating disclosures sharpen that claim:

• More than 75% of new Teslas sold in North America included the company’s supervised FSD system.
• Tesla counted 1.7 million active FSD subscriptions worldwide, up 67% from a year earlier.
• The company had its largest car-order backlog in four years.

Despite its name, Full Self-Driving still requires a human driver to remain behind the wheel and pay full attention. Tesla charges $99 per month for FSD in the US, sets different prices by market and has not disclosed how much recurring revenue the software generates.

Ives called FSD the highest-margin segment of Tesla’s business. He said expanding adoption to about 50% of Tesla’s global customer base, from roughly 10–15% at present, could “transform the whole financial model.”

Ives argued that wider FSD adoption would contribute more than another 50,000–100,000 cars sold each year:

“For every dollar of FSD revenue, the market rewards it 50-70 percent more than that dollar they would generate from selling an actual car.”

Can a merger finance the autonomy race?

Musk used the flying Roadster event to argue for the combination:

“You’re going to see the results of what happens when you have a collaboration with the world’s best car company and the world’s best rocket company,” he said.

Under the merger proposal, the combined company could accelerate research into materials, AI and manufacturing, reduce costs and improve access to critical components such as chips. It would also give Tesla more spending power against Chinese rivals and Big Tech groups with far larger AI budgets.

Lei Xing, founder of Chinese consultancy AutoXing, said: “the future of mobility and vehicles will be autonomous, and autonomy will likely benefit from SpaceX tech.”

Evan Horetsky, a former Tesla executive and founder of industrial project developer Atlas Partners, said Chinese EV growth was “phenomenal and predicated on quick and full value chains of manufacturing—but don’t ever underestimate the Tesla team, always pushing technical boundaries in at least autonomy and robotics.”

An unidentified holder among Tesla’s top 15 shareholders supported the merger, arguing that Tesla could benefit from “all the AI-related innovations now happening at SpaceX.”

The combination could also increase Musk’s control. William Blair analyst Jed Dorsheimer said the tie-up, if approved by shareholders and regulators, could allow Musk to control 50% or more of the merged entity.

That concentration creates risks for businesses that have operated separately. Max Willson, an industry observer and Tesla enthusiast, said:

“I think Elon Musk is playing a dangerous game.”

“SpaceX and Tesla have achieved extraordinary things, but combining his businesses risks tying their futures to his most speculative bets,” Willson added.

“My concern is that trouble in AI could spread across the group, putting otherwise strong businesses at risk,” he said. “SpaceX’s success should be protected, not used to bankroll an ever wider set of ambitions.”

Can FSD pass Europe’s regulatory gate?

Tesla has won no regulatory approval for the fully autonomous version of FSD. Its supervised version has been approved in the Netherlands and several other European countries, but broader access depends on a vote by EU member states.

That vote has been delayed until December. Tesla and Volkswagen-backed Xpeng are competing for European approval for their advanced driver-assistance and autonomous-driving systems.

Xpeng is working with German authorities and is targeting EU approval for its FSD rival XNGP after the bloc adopts regulations for advanced driver assistance and autonomous driving. Those regulations are expected early next year.

“We aim to be one of the first,” said Xpeng general counsel Zheng Yeqing.

Is Tesla changing what automakers sell?

Ferrari chief executive Benedetto Vigna said at a recent automotive conference in Milan that the flying Roadster “certainly shows that even in the car world there’s a lot to do.”

Whether or not a merger proceeds, Tesla’s autonomy program already commands traditional rivals’ attention. China’s Xpeng, South Korea’s Hyundai and Japan’s Toyota are expanding robotics businesses, while General Motors and Ford in the US are pursuing revenue from energy storage.

Autonomous driving has become a major global battleground as electric vehicles with similar ranges and prices proliferate. Tom Narayan, an analyst at RBC Capital Markets, called Tesla “a classic case of an innovator that disrupts and the other follows because they don’t want to be left behind.”

General Motors hired former Tesla executive Sterling Anderson last year to oversee product development, with a mandate to develop a new generation of fully autonomous personal cars.

BMW and Mercedes-Benz have also partnered with Qualcomm and Nvidia on a “Level 2 plus” driver-assistance system that requires active monitoring by a human driver.

“The leading carmakers today… are trying to reconsider their strategy completely,” said Igal Raichelgauz, chief executive of Israeli autonomous-driving technology start-up Autobrains. He said manufacturers also want subscription models built around more advanced eyes-off technology to generate new revenue.

Volvo Cars chief executive Håkan Samuelsson told the Financial Times that “Tesla is probably leading the development in the west,” while maintaining that Volvo remained firmly ahead in software. “We will, together with Nvidia, develop our cars to be door-to-door automated and that will come in a new Volvo car pretty soon here,” he said.

The next dated tests are Tesla’s EU member-state vote, delayed until December, and the bloc’s autonomous-driving regulations expected early next year. They will set the timetable for Tesla FSD and Xpeng XNGP competition in Europe, while any merger still requires shareholder and regulatory approval.