Elon Musk’s SpaceX has received direct financial backing from Chinese investors, according to previously sealed testimony that has now come to light. This revelation has sparked fresh scrutiny regarding foreign ownership interests in a company that plays a crucial role in U.S. military operations.
The insider testimony, disclosed during a court case, marks the first instance where direct Chinese investment in the privately held aerospace company has been acknowledged. Although U.S. regulations do not outright ban Chinese ownership in military contracting firms, such investments are heavily monitored due to their implications for national security.
“They obviously have Chinese investors to be honest,” stated Iqbaljit Kahlon, a prominent investor in SpaceX, during a deposition last year. He noted that some of these investors are “directly on the cap table,” referring to the document that outlines a company’s shareholders.
While Kahlon’s testimony confirms the existence of Chinese investment, it does not specify the extent or identity of these investors. Kahlon has longstanding ties with SpaceX’s leadership and operates a firm that facilitates investments from wealthy individuals looking to acquire shares in the company.
SpaceX has historically kept its ownership structure under wraps. Previously, it was reported that some Chinese investors had acquired indirect stakes in the company by investing in intermediary funds that owned shares in SpaceX. Kahlon’s recent testimony, however, indicates a more direct financial relationship.
SpaceX has flourished in recent years, securing numerous sensitive contracts with the U.S. government, including the construction of spy satellites for the Pentagon and launching missions for NASA. The company’s Starlink internet service has also been utilized by U.S. embassies and the White House. With Musk holding an estimated 42% stake in SpaceX, valued at around $168 billion, he ranks among the wealthiest individuals globally.
Experts in national security law believe that federal authorities would likely be keen to investigate the implications of Chinese investments in SpaceX. The nature of these investments could pose significant risks if they grant access to nonpublic information, such as details about contracts or supply chains that may be exploited by Chinese intelligence. Sarah Bauerle Danzman, a professor at Indiana University with experience in scrutinizing foreign investments for the State Department, expressed concern that such access could lead to “huge risks” for national security.
Attempts to reach SpaceX for comment on this matter were unsuccessful, and Kahlon chose not to provide additional insights.
The court documents stem from ongoing litigation in Delaware involving Kahlon and another investor. The testimony remained sealed until ProPublica, aided by the Reporters Committee for Freedom of the Press and the law firm Shaw Keller, sought to make it public. Despite SpaceX’s opposition, a judge ruled that certain records must be unsealed, resulting in the public filing of Kahlon’s testimony.
Investing in SpaceX operates under much stricter conditions compared to purchasing shares in publicly traded companies like Tesla or Microsoft. SpaceX maintains control over its pool of investors, categorizing them into different groups. The most exclusive category includes direct investors who own shares in SpaceX, whereas indirect investors typically acquire their stakes through intermediaries like Kahlon, often incurring substantial fees. Until now, known Chinese investors had fallen into the latter group.
ProPublica previously reported on an unusual aspect of SpaceX’s investment strategy concerning Chinese funding. Testimony from the Delaware case revealed that SpaceX permits Chinese investors to acquire stakes as long as their funds are funneled through offshore secrecy havens like the Cayman Islands. These arrangements allow companies to report investments to the government only under limited circumstances, creating ambiguity around the threshold for acceptable investment levels.
Following ProPublica’s earlier findings, House Democrats sent a letter to Defense Secretary Pete Hegseth, expressing concerns over the potential “obfuscation” surrounding SpaceX’s dealings. They highlighted the sensitive nature of the company’s work for the Department of Defense and NASA and raised questions about the implications of its lack of transparency. It remains unclear whether any action was taken in response to these concerns.
Kahlon has leveraged his access to SpaceX shares into a profitable enterprise. His investor network spans the globe, with redacted names in the recently unsealed document indicating connections from Chile to Malaysia, with at least two investors based in mainland China. The extent of this international financial web raises significant questions about the influence of foreign capital in a key American defense contractor.
In a correspondence from four years ago, a financier based in China remarked to Kahlon, “You made a big fortune.” Kahlon humorously replied, “Lol something like that. SpaceX has been the gift that keeps on giving. All thanks to you.”
Kahlon’s relationship with SpaceX dates back to its early days as a startup. SpaceX’s CFO, Bret Johnsen, testified that Kahlon has been involved with the company longer than he has. Johnsen also disclosed that SpaceX does not have an official policy regarding investments from countries considered adversaries by the U.S. However, he mentioned that he advises fund managers to “stay away from Russian, Chinese, Iranian, North Korean ownership interests” due to the potential complications in securing government contracts.
By 2021, Kahlon appeared to have hesitations about soliciting funds from China, reflecting the U.S. government’s growing wariness regarding Chinese investments in technology sectors. At that time, he indicated to an associate that he was “being picky” about potential investors, specifying he wanted to avoid relationships with individuals from mainland China. Yet, as he sought to build a coalition of investors, those concerns seemed to dissipate. By November of that year, he actively raised funds from Chinese sources to invest in SpaceX.
Court records indicate that a Shanghai-based firm ultimately sent Kahlon $50 million for investment in SpaceX. However, the deal was reportedly canceled after the plan became public.
The intersection of foreign investment and national security continues to be a contentious issue, particularly as companies like SpaceX expand their influence and secure vital contracts within the defense sector. The implications of such investments warrant careful examination, particularly in an era where the boundaries between commerce and national security are increasingly blurred.
