SpaceX Warns Investors of Potential Equity Dilution Ahead of IPO

SpaceX is warning investors that it may dole out “significant equity” in “future transactions” following its upcoming IPO — language that was added amid constant industry gossip that CEO Elon Musk ultimately plans to merge his space-and-AI company with Tesla.

The new language was tucked deep in the risk factors section of SpaceX’s first official amendment to its IPO filing, which was made public last month. The company tacked this sentence onto the end of the first paragraph of a risk about how mergers and acquisitions may go sideways:

We may issue a significant amount of equity in connection with future transactions.

SpaceX has been busy with M&A, acquiring Musk’s AI company xAI last year, and recently entering into a deal with Cursor that includes an option to buy the startup for $60 billion in stock following the IPO. It’s certainly possible that SpaceX will have other targets in mind after it raises a reported $75 billion when it lists on the Nasdaq exchange (minus $20 billion committed to paying down former xAI and X debt). But this warning seems tailored to prepare investors for the possibility of a major dilution event — like a future combination with Tesla.

Musk has mused about combining his companies for many years, and the SpaceX IPO is only heating up the chatter that he will finally bring his two biggest entities together. A merger of this size would face a number of legal and potential regulatory challenges, and would likely have to pass a shareholder vote at Tesla. But, as the IPO filing showed, Musk has supreme voting power at SpaceX; the only person who could vote down a merger on that side of the term sheet would be Musk.

Musk’s voting power at SpaceX would not be at risk during a major dilution event. SpaceX has three primary classes of shares heading into this IPO. They all have the same basic economic rights, but different voting rights.

The Class A shares are what will be sold to the public and come with one vote per share. The Class B shares are owned exclusively by Musk and have 10 votes per share. SpaceX also has Class C common stock, which comes with no voting rights at all. While those Class C shares are currently used for executive compensation, Musk could use those shares to buy other companies without diluting his power. (SpaceX also has Class D shares set aside, which have reduced economic rights; the company has not yet decided on whether those shares will have any voting power.)