Could China Block A Rumored Tesla-SpaceX Merger? | The Brainstorm 143

**Brett** (0:00)
You could not, at the beginning of this year, have spent any amount of money to convince an AI model to score better than 50% on this benchmark. And today, on a per task basis, you can do that for 15 cents. So literally an infinite cost decline.

**Nick** (0:17)
Do you think a merger happens before end of year?

**Sam** (0:21)
There's going to be 50 winners that are bigger than everything we've seen so far, and people are going to look back and be like, how can you believe when Apple and NVIDIA were just single digit trillion companies? Welcome to The Brainstorm. Today we're talking Tesla in China. Is that a stumbling block for a potential future merger with SpaceX? And as always, AI cost declines keep falling rapidly.
Brett, Elon out there saying, this is not an issue. What are your thoughts? Is Tesla China a potential landmine in a SpaceX-Tesla merger?

**Brett** (1:05)
I could understand why Tesla China poses a somewhat uncomfortable puzzle piece for any SpaceX-Tesla merger since SpaceX has a lot of national security related business. And there are plenty of restrictions on, you know, kind of call it dual-source type technologies entering China.
I don't see it as a stumbling block because there are probably ways to ring-fence the Chinese assets. It is interesting that like Tesla Shanghai, the fact that Tesla owns its own factory there is really an anomaly relative to the rest of the automotive landscape. And I would say an underestimated testament to Elon Musk's ability to navigate kind of like political choppiness in all kinds of different ways.
I think that to be honest, for Tesla's future value, the China factory is not that important since robo-taxi is where most of the future economics of the business are going to lie. And we don't think that China is going to be a place that they're able to generate a lot of robo-taxi revenue because of a combination of regulatory pressure and having to deal in local players. And it's a very low cost-per-mile right-hill market already. But they do export from Shanghai to non-European, non-U.S. countries. So it is a manufacturing footprint for them that's important. But I think they'll be able to navigate around it. I don't know. What do you think? What do you think, Nick?

**Sam** (2:45)
Yeah.
Well, I was going to say it's who doesn't want it. It's like the US doesn't want it and China doesn't want it. Can you imagine how popular their cars would be if Starlink was integrated into it? And that's certainly something that China doesn't want. But it would be extremely compelling for the Chinese consumer.

**Nick** (3:06)
Do they have to send Starlinks around China?
Or do they allow Starlinks to fly over China? No.

**Sam** (3:15)
They can't do it. What do you think about it?
Yeah, exactly. It's in space. They fly over it. There's just not...

**Nick** (3:23)
Do you have to turn them off?

**Sam** (3:25)
Well, there's no antenna sales into China. And so you don't let service happen via that route. But as Brett loves to point out...

**Brett** (3:35)
He has a post on it.
What are you going to do? You can just shake your fist at the sky. Like, you know, in Tehran, there's all these satellite dishes, so people can get, you know, illegal satellite TV. This is prior to low-Earth orbit constellations. And those were totally illegal. I think that Tesla can't... I mean, SpaceX certainly needs to kind of like not get totally off sides of the Chinese government, so shouldn't actively try to solicit the business. But I would imagine that they would, you know, happily accept money from someone who seems to be from elsewhere who happens to have a, you know, a car like in China. I don't know.

**Nick** (4:12)
Isn't this largely out of like Yvonne and Ko's hands? Like isn't this just a government, you know, the military is, this is our stipulation if you want to merge and be a defense company, otherwise you lose all of your defense contracts type of deal. Like as much as he's saying like, no, that's not going to happen. Does he, I mean, you know, he obviously has sway in the government, but like I'd imagine it's just, you know, military protocol to say, hey, you can't have this type of business going on with a potential adversary.

**Sam** (4:43)
I think to Brett's point, this is not an insurmountable hurdle. It's like owning a car factory in China was arguably a bigger hurdle than figuring this out with respect to operating a business and bring fencing a portion of it. And I think I'd echo what Brett said, which is the China factory was a keystone of Tesla, I'll call 2.5, where everything was riding on the ability to scale auto and decrease battery costs. I think we are in Tesla 3 right now, which is the transition. And it's pretty clear Tesla 3.5 is the Robo taxi, in which case, you know, it's all being manufactured in the US and the China factory is still important, but no longer the driver of future value.