Tesla and SpaceX: How independent will the due diligence be?

Tesla and SpaceX are exploring a merger idea, with the potential to create one of the world’s biggest and most influential business entities, harnessing a projected value of $3.5 trillion. 

Elon Musk currently owns around 20% of Tesla and just under 50% of SpaceX (although the structure of his shares in the latter gives him a far higher voting power percentage and clear control). 

He has championed the merger idea, saying there’s a “lot of merit” to combining the companies. Indeed, many aspects of their models are seeing increasing overlap, specifically around automation and robotics. 

However, he has also acknowledged the hurdles involved in bringing the two entities together, so it is, by no means, a done deal yet. 

The issue we should focus on at this stage is the due diligence. Musk has noted that this will be conducted by committees from both boards, composed entirely of independent directors. On paper, that’s good governance. But we should look closer at the degree of actual independence, because when it comes to such big business decisions, impartiality is everything.

Speaking about the potential merger on an earnings call, Musk acknowledged that he is unable to play a direct role in any negotiations. However, he described the negotiations as an “odd kabuki dance where two groups of people are talking, and I cannot be in the conversation”.

Kabuki – if you didn’t know – is a classical Japanese theatrical art form, renowned for elaborate costumes and exaggerated gestures. 

It is rigidly scripted; zero room for improv. 

That, in itself, is a good indication of how Musk actually sees this part of the process: more of a tick-box exercise than an attempt to put a merger under the microscope and decide on its merits from a stakeholder perspective. 

Musk has, in the past, given many indications that he prefers the “strong-armed leader” approach, only taking advice from boards when it suits his viewpoint and, consequently, favouring board appointments that will agree with his plans.   

Individually, he doesn’t give off an air of being pro-independence in situations like this game-changing merger – on paper at least.

This is the other major factor to look at. We need to understand whether the “independent” directors that Musk has shone the spotlight on will really meet that criteria in practice.

Stock exchanges like Nasdaq define “independence” through rigid, negative criteria. In other words, you’re not independent if you fall into at least one of a robust list of categories like “employed in the last three years”, family member”, “accepted sums over a certain threshold within a specified time period” 

The independent directors involved in this merger due diligence meet those criteria. It’s important to acknowledge that. The boxes are ticked. 

However, for mergers, especially those with incredible game-changing potential for both companies, and indeed the wider industry, independence is measured not by its ability to tick boxes, but by directors’ autonomy, financial detachment, and structural authority to give every proposal its time under the microscope and, if necessary, tell the powerful leader “no.”

In the landmark 2024 Delaware Court of Chancery decision (Tornetta v. Musk), a proposed, record-setting pay package for Musk was rejected following a lawsuit by individual shareholder Richard J. Tornetta. 

Part of the reason for the rejection was specifically the independence of the “independent” directors. The court found that multiple directors who ticked the independence box actually had previous “lucrative” personal relationships with Musk, that Tesla omitted key facts about the pay package from its proxy statement, and that the wider shareholder vote on the pay package was ill-informed because of this. 

• Ira Ehrenpreis, venture capitalist. He sits on the boards of both companies (Tesla since 2007 and SpaceX since 2026), which would lead to immediate conflict of interest concerns. Moreover, during the Tornetta lawsuit, he testified that he and Musk “were not on different sides of things.” 
• James Murdoch, an independent director on Tesla’s board since 2017. He is widely known to share a close, multi-decade personal friendship with Musk, having vacationed with him, and benefitted from as much as $7.5 billion from pre-IPO investment in SpaceX. 
• Robyn Denholm, chair of Tesla’s board since 2018. She was found to have accumulated roughly $280 million from exercising Tesla stock options, creating a financial windfall so life-altering that, in the Tornetta case, Delaware courts questioned whether anyone in that position could remain detached and independent in their decision-making. 

We don’t yet know the identity of the directors who will take part in the special committees Musk has set up to explore the merger, but we’ll be watching for names like the ones above. 

When companies execute transactions of historic scale, independent committees like the two Musk has set up are meant to serve as a strong line of defence for shareholders. They have to ask uncomfortable questions, even if they go against the rhetoric of someone with as much control as Musk. 

How that will play out with Tesla and SpaceX is uncertain. Musk openly supports top-down leadership and stifles challenging voices. The independent directors on both his boards have been criticised for the “in name only” nature of their roles. Meanwhile, cases like Tornetta have prompted him to move both companies’ incorporation to the US State of Texas, which champions itself as an alternative to the traditional corporate home of Delaware, where critics argue deliberative leadership is stifled by excessive shareholder scrutiny. 

It all paints a picture that the exploratory phase is more for show than for actual exploration, but here’s the thing: the due diligence is just one party of a lengthy process. 

Such a merger will likely be subject to intense regulatory scrutiny, not to mention wider investor probing in the case of Tesla, and the court of public opinion. Independent assessment is key for such hurdles to be crossed successfully. Let’s hope it will make a difference.