Elon Musk is having a week. Honestly, when is he not? But January 2026 feels different. It’s a weird mix of high-stakes government contracts, a massive AI "nudification" scandal that has regulators breathing down his neck, and rumors that he might just fold SpaceX into Tesla to create some sort of ultimate "everything company."
If you’re trying to figure out what is going on with Elon Musk, you have to look at the Pentagon first.
Just a few days ago, Defense Secretary Pete Hegseth stood at SpaceX headquarters in Texas and dropped a bombshell. The Pentagon is officially integrating Grok—Musk’s xAI chatbot—into its unclassified and classified networks. Think about that for a second. The same AI that has been getting banned in Malaysia and Indonesia for generating "spicy" images is now being tapped to help the U.S. military "exploit" two decades of combat data. Hegseth basically said the military's AI "will not be woke." It's a massive win for Musk’s xAI, which was valued at roughly $20 billion recently, but the timing is, well, chaotic.
The Grok Scandal and the Global Crackdown
While the U.S. military is rolling out the red carpet for Grok, the rest of the world is reaching for the fire extinguisher.
The biggest mess right now involves "nudification." Over the last few weeks, Grok’s image-editing tools were used to create non-consensual sexualized images of real people, including celebrities and, tragically, minors. It’s been a disaster. California’s Attorney General, Rob Bonta, just launched an investigation into whether xAI is violating state deepfake laws. In the UK, Prime Minister Keir Starmer called the images "disgusting" and "shameful."
Musk’s response? He basically caved.
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On Thursday, X (formerly Twitter) announced it was banning the ability to edit images of real people in "revealing clothing" like bikinis. They’re also geoblocking these features in countries where they’re flat-out illegal. It’s a rare moment of Musk retreating under pressure, though he still spent part of the week daring people to try and "break" Grok's new moderation filters.
Is a Tesla and SpaceX Merger Actually Happening?
On the business side, the "Musk-o-sphere" is buzzing with a theory that sounds crazy but might be inevitable.
For years, people have talked about an "X Holdings" company. Now, with SpaceX targeting a 2026 IPO at a potential $1.5 trillion valuation, some big-name investors like Chamath Palihapitiya are betting Musk skips the IPO entirely. The theory? A reverse merger where Tesla buys SpaceX.
- SpaceX Status: Currently valued around $800 billion privately.
- The IPO Rumor: Some analysts expect a $25 billion to $30 billion public offering later this year.
- The Synergy: Tesla is moving toward being an AI and robotics company (think Optimus and Robotaxis), while SpaceX provides the Starlink "backbone" for global connectivity.
If he pulls this off, it would create a corporate behemoth that touches everything from the ground to the stars. But it’s risky. Tesla’s stock has been a rollercoaster, and many shareholders aren't thrilled about the idea of Musk using Tesla's balance sheet to fund his Mars ambitions or bail out his other ventures.
The End of the DOGE Era
Remember the Department of Government Efficiency (DOGE)?
Well, it’s basically dead. On New Year’s Day 2026, reports surfaced that the "department"—which was never actually an official government agency—has been quietly wound down. Musk himself admitted in a recent podcast that he wouldn't do it again, saying he should have just focused on his companies.
Critics say it was a "chaos-fest" that sowed confusion across federal agencies for months. Supporters say it highlighted billions in waste. Either way, Musk seems to have moved on from his role as "Efficiency Czar" to focus on the xAI-Pentagon partnership and the next big Starship flight.
Why This Matters Right Now
It’s easy to get lost in the tweets and the drama, but there’s a pattern here. Musk is pivoting hard toward defense and infrastructure.
He’s no longer just the "electric car guy." He’s the guy who owns the satellites the military uses, the AI the Pentagon is installing, and the rockets that are the only way for NASA to get to the Moon (the Starship V3 architecture is slated for more big tests later this year).
The takeaway for the rest of us?
- AI Regulation is coming: The Grok scandal is likely going to trigger much stricter deepfake laws globally.
- Privacy is a trade-off: If you use X, your data is now part of the "truth-seeking" engine for a tool used by the Department of Defense.
- Space is getting "retail": Whether it's an IPO or a Tesla merger, 2026 is likely the year regular people finally get a chance to "own" a piece of SpaceX.
Keep an eye on January 17th. Musk promised to open-source X's recommendation algorithm then. If he actually does it, it might give us the first real look at how much "regretted user-seconds" actually matter to the man running the show.
To stay ahead of the curve, you should monitor the SEC filings for Tesla over the next quarter; any mention of "strategic investments" or "inter-company agreements" will be the first official signal that the SpaceX merger is more than just a podcast theory. Also, check your privacy settings on X—if you aren't comfortable with your public posts training the Pentagon's new favorite AI, it might be time to go private or delete the metadata on your uploads.