The Case Against a SpaceX and Tesla Merger
The market is getting excited about a potential merger, but now may not be the right time for Tesla shareholders to get the best deal.
While the possibility of a merger between SpaceX and Tesla has been discussed, it appears that the timing may not be ideal for Tesla to pursue such a merger. This conclusion is based on two primary considerations. Firstly, the trend in the industrial conglomerate sector suggests that breaking up large companies is becoming more common.
This trend is evident in companies like General Electric, United Technologies Corporation, Honeywell, 3M, Danaher, Johnson Controls, and Emerson Electric. These conglomerates, which once commanded a premium, no longer do so and a merger between Tesla and SpaceX may not lead to an immediate market-valuation rerating. On the contrary, it could result in the opposite outcome.
Secondly, Tesla is approaching a pivotal stage in its journey to scale its robotaxi service, which will generate recurring revenue. Investors believe in the potential of autonomous driving, leading them to hold the stock. However, this robotaxi/cybercab service is already a part of Tesla's valuation. Additionally, while Tesla could benefit from SpaceX, the latter is a business that demands massive, ongoing, and uncertain capital expenditures, primarily focused on AI infrastructure.
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