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A possible merger between Elon Musk's rocket company SpaceX, opens new tab and carmaker Tesla, opens new tab may face bigger obstacles from politics than from regulation.
According to Reuters, the merger could draw scrutiny in Beijing and potentially ignite a battle between US President Donald Trump and the Democrats.
Musk revived speculation about a tie-up this week, calling a combination "a good idea" and confirming that committees at both companies were reviewing a potential deal, a step toward what could become the largest merger in history and create a company worth about $3.5 trillion.
But a merger would also unite one of the US government's most important aerospace and defense contractors with one of the most China-exposed major American manufacturers, a combination likely to raise questions about national security risks both in Washington and in Beijing.
Those concerns are unlikely to derail a deal, analysts said, but they would likely leave the combined company exposed to years of political wrangling and pressure from both sides of the Pacific.
Tesla's China operations, they said, could become a source of leverage for Beijing in any future dispute with Washington, while a Democratic takeover of the US House of Representatives in next month's midterm elections could subject the deal to congressional investigations and political maneuvering.
Democrats immediately raised concerns about the deal's implications, signaling their intent to turn the merger into a political flashpoint ahead of the November 3 midterms.
US Senator Cory Booker, a New Jersey Democrat who sits on both the Judiciary and Foreign Relations committees said, “If Elon Musk moves forward with the merger of Tesla and SpaceX, the deal would carry real risks that antitrust enforcers across the world would scrutinize."
He added that he was prepared to conduct oversight of any deal: "When one person controls the infrastructure that governments and militaries depend on, his business decisions become national security decisions, too."
Musk could seek to address concerns by limiting how closely the two companies are integrated.
The greater threat to the deal may come later, however, if a future administration takes a harder line on the relationship between Tesla and a company increasingly tied to US national security, analysts said.
