Why a Merger With Tesla Could Be a Disaster for SpaceX

Investors have long pondered the possibility of Elon Musk merging his two colossal companies, SpaceX and Tesla, into one. With SpaceX now publicly traded, the idea gained traction just four months after the IPO. In recent months, SpaceX acquired xAI, an AI company, further fueling speculation of consolidation. However, Tesla and SpaceX's boards have formed committees to explore the potential benefits and drawbacks of a merger.

Elon Musk, who has recused himself from the review, has expressed interest in the merger, citing operational synergies in AI, chip manufacturing, robotics, and other areas. Yet, there's a significant reason why a merger could be detrimental for SpaceX investors.

Tesla's third-quarter earnings have recently been released, revealing flat revenue growth at $28 billion, compared to SpaceX's impressive revenue more than doubling. While SpaceX's AI infrastructure business is booming, Tesla's automotive and services segments have shown stagnation. Tesla's revenue has been largely flat since 2023, and the company has yet to meet its ambitious production targets set by Musk.

Furthermore, Tesla's valuation is based heavily on future products, like Optimus, a humanoid robot that hasn't hit the market yet. This inflated valuation is a cause for concern, as a merger would likely conceal this overvaluation from investors.

At present, a SpaceX-Tesla merger would undervalue SpaceX investors by paying a premium for an overpriced asset. SpaceX's growth, primarily driven by its AI infrastructure and Starlink, is promising and warrants caution against the merger. SpaceX investors should hold off on accepting a merger until Tesla demonstrates tangible growth from its autonomy ventures or its stock price is reduced.