Trump Grab For Defense Firms Could Be Nightmare For Musk’s SpaceX

The U.S. government spends hundreds of billions of dollars a year with defense companies. The Trump administration seems to think it deserves something more in return than goods and services: equity.

The Defense Department is considering taking ownership stakes in defense contractors, Commerce Secretary Howard Lutnick said Tuesday in an interview on CNBC.

The financing of munitions acquisitions needs rethinking, and Secretary of Defense Pete Hegseth and Undersecretary Stephen Feinberg “are on it,” Lutnick said. “The way it has been done has been a giveaway.”

His comments, which came during a discussion on the U.S. government’s assumption of a stake in Intel, caught defense watchers by surprise. But major defense companies may be better able to fend off any government demands. For fast-moving SpaceX, allowing the government a seat at the owners’ table and inside scrutiny of how it operates might be particularly repellant for billionaire founder Elon Musk. And he may have stronger leverage than anyone to deny that.

Unlike the ailing chipmaker and rare earths mine developer MP Materials, both of which gave the government equity stakes in return for badly needed funding, SpaceX and other major defense contractors have robust balance sheets. That even includes Boeing, which raised $24 billion in equity last year and has made substantial progress toward improving production of its commercial airplanes and straightening out troubled defense programs.

If Trump started making eyes at companies like SpaceX or Lockheed Martin, it’s unclear that the administration has any legal authority to seize stakes “in perfectly healthy defense companies,” noted Todd Harrison, a defense analyst at the American Enterprise Institute.

In June, when the president’s relationship with billionaire first bro Elon Musk collapsed spectacularly, former Trump adviser Steve Bannon called for him to use the Defense Production Act to take over SpaceX. If it were 1951, that might have been possible. But in 1952 the Supreme Court declared unconstitutional President Harry Truman’s attempt to use the act to nationalize steel mills, and its seizure powers were formally repealed by Congress in 2009.

Given that SpaceX is the world’s No. 1 launch provider and maker of low-Earth orbit satellites, the U.S. government has little alternative to the company for many of the roughly $13 billion in outstanding contracts it holds – and little leverage.

Musk, who comfortably controls the majority of SpaceX’s voting shares, is unlikely to give the government a stake, said Kimberly Siversen Burke, director of government affairs at the consultancy Quilty Space, for the same reason that he hasn’t taken the company public – he doesn’t need the money and he doesn’t want outside scrutiny. “The second outside shareholders — let alone Uncle Sam — get a look under the SpaceX hood, the whole game changes,” she said. “Transparency, board seats, GAO audits … Elon’s worst nightmare.”

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The Defense Department declined to comment. White House spokesman Kush Desai wrote that in the wake of taking a stake in Intel, “the Administration will continue to explore other deals that ensure taxpayers reap the benefits of investments being made with their money by the federal government.”

The U.S. government has taken equity stakes and warrants in struggling companies before amid severe economic crises, rescuing banks and General Motors during the Great Recession, and airlines during the pandemic. But Trump is reaching for an unprecedented share of the spoils of corporate America’s activities. The administration extracted a “golden share” in U.S. Steel as a condition for approving its merger with Nippon Steel, and cut a deal for 15% of Nvidia’s chip sales to China. On Friday the government secured a 10% stake in Intel in return for releasing $5.7 billion in grants previously committed under the CHIPS Act and $3.2 billion from another Biden-era program.

White House economic advisor Kevin Hassett described it as a “down payment” on a sovereign wealth fund that Trump aims to establish.

If the major defense contractors cave to political pressure, equity investments could create nightmarish conflicts of interest, Jefferies analyst Sheila Kahyaoglu wrote in a note. “We can only imagine the first protest of an award that goes to a prime that the gov’t has an equity stake in over a non-government prime.”

It could also have a chilling impact on companies’ willingness to do business with the U.S. government and on the willingness of investors to put money into companies that do, said Harrison — and work against the Pentagon’s recent attempts to expand the number of companies that compete for government contracts. “VC and PE investment in defense startups could dry up if there is a perception that the government is interfering in the market and creating an unfair playing field,” he said.

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