Additional Coverage:
- SpaceX may have missed its window to buy Tesla (fortune.com)
During Tesla’s Q2 earnings call on July 22, an analyst posed a question on many investors’ minds: Is SpaceX planning to acquire Tesla, the electric vehicle, battery, and robotics company? Elon Musk’s response was cautious but suggestive.
He stated, “We can’t talk about combining companies and things like that on an earnings call. It’s got to be done with the appropriate process.”
Despite the non-committal answer, Musk highlighted the growing collaboration between the two firms, pointing to overlapping projects like the Digital Optimus “human office worker,” a joint initiative powered by the Grok AI chatbot developed by SpaceX’s xAI division. He also mentioned SpaceX’s Starlink satellite internet being integrated into Tesla vehicles, underscoring increasing synergy.
Musk’s remarks have reignited speculation about a potential merger between SpaceX and Tesla. However, the financial landscape for such a deal looks markedly different than just weeks ago.
After SpaceX’s highly anticipated IPO on June 12, its stock soared from $135 to a peak of $211 by July 16, valuing the company at an impressive $2.8 trillion. Analysts from major underwriting firms like Goldman Sachs, Morgan Stanley, and J.P.
Morgan projected the stock would maintain strength, estimating a price near $225 within the next 12 to 18 months.
At that time, leveraging SpaceX’s high valuation to acquire Tesla seemed strategically sound. Tesla’s market cap stood at $1.6 trillion versus SpaceX’s $2.8 trillion.
A stock-based acquisition would require SpaceX to issue roughly 57% more shares, allowing existing shareholders to retain nearly two-thirds ownership of the combined entity. This appeared to be a savvy use of perceived overvalued stock to consolidate two powerhouse companies.
However, market volatility has since altered the equation dramatically. By July 24, Tesla’s stock price had fallen 24% from $405 to $308.
SpaceX’s stock experienced an even steeper decline, dropping 46% from $211 to $113. SpaceX’s valuation now sits around $1.49 trillion, while Tesla’s is approximately $1.22 trillion.
Under these conditions, SpaceX would need to issue about 82% more shares to purchase Tesla, diluting current shareholders down to 55% ownership-a significant 45% dilution.
This shift raises serious questions about the attractiveness of a merger at current valuations. SpaceX would effectively be overpaying for Tesla, and the massive share issuance could severely depress SpaceX’s stock value, reminiscent of the AOL-Time Warner merger fallout.
SpaceX investors would end up owning just over half of the combined company, sacrificing substantial value and facing negative cash flow prospects. Tesla shareholders might also find themselves worse off unless they promptly sold their shares, as the stock could decline under the weight of dilution.
In sum, while Musk’s vision of a unified Tesla-SpaceX entity is compelling, the current financial realities present significant challenges. Despite the daunting numbers, Musk’s upbeat tone during the call suggests he remains focused on the long-term potential, painting a hopeful picture of what lies ahead-even if the immediate math tells a more complicated story.
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- SpaceX may have missed its window to buy Tesla (fortune.com)