Cathie Wood's ARK Invest Says Tesla's Robotaxi Cash Flow Could Bankroll SpaceX's AI Ambitions, Backing a Potential Merger of Elon Musk's Two Companies. Is This the Thesis That Finally Reprices Tesla Stock?

Cathie Wood's Ark Invest contends that Tesla's robotaxi venture will flourish, envisioning it to constitute 81% of Tesla's stock worth $4,400 by 2031. Furthermore, Ark Invest posits that Tesla's cash flow from its robotaxi network could be harnessed to aid Space Exploration Technologies (SpaceX) in the event of a merger between the two entities.

The question arises: is it a fitting moment to invest in Tesla stock? If one believes in the success of robotaxi and the long-term competitive edge of Tesla's dedicated robotaxi, Cybercab, then the answer is affirmative. The steady income stream from robotaxi should remain with Tesla rather than be utilized to finance SpaceX's expansion aspirations.

Consequently, if robotaxi proves successful, Tesla's stock value is anticipated to surge significantly. Moreover, there are five reasons why Tesla should not be consolidated with SpaceX.

Firstly, although SpaceX is a reputable company, investing in its growth necessitates a full endorsement of its growth prospects and valuation. By ceding a portion of Tesla's robotaxi-generated cash flow to SpaceX, one effectively transforms into an investor in SpaceX's growth, relinquishing Tesla's share of robotaxi cash flow. Secondly, given the ambiguity surrounding the robotaxi rollout, should one be confident in its success, the stock price is expected to appreciate, enabling Tesla shareholders to negotiate a more advantageous price for a potential acquisition.

Thirdly, as explored in a previous discussion about a merger between SpaceX and Tesla, the two companies possess distinct risk and capital profiles. While Tesla's investments in robotaxi and Optimus robots necessitate substantial initial funds, Tesla is poised to ramp up its robotaxi rollout in 2027. This transition toward becoming a highly cash-generating firm with a reliable income stream contrasts with SpaceX's reliance on artificial intelligence infrastructure, launch services, and the inherent risk of launch failures.

In essence, these companies exhibit disparate risk and capital profiles. Fourthly, while integrating SpaceX's AI infrastructure with Tesla's physical AI (electric vehicles, robotaxi, Optimus) offers benefits, it is crucial to acknowledge that the two companies already collaborate through a joint venture, Terafab, in a semiconductor fabrication facility.

A merger would simplify Terafab's financial ownership and funding, yet it is improbable that execution challenges would be mitigated. Instead, a JV agreement would suffice to address the financial aspects, while execution difficulties would persist. Lastly, the formation of a mega conglomerate defies the prevailing trend in the industrial sector, which has increasingly focused on splitting entities to allow management to concentrate on individual businesses and provide investors with a clear investment proposition.

The era of conglomerate premium appears to be waning, suggesting a more likely conglomerate discount. If robotaxi proves successful, Tesla's stock is likely to be rewarded, and investors must exhibit patience in anticipation of management's performance. The stock does not necessitate SpaceX for this objective, and if SpaceX aims to acquire Tesla, it would be more advantageous for Tesla's shareholders to wait until robotaxi generates value for them.

The buy Tesla thesis does not hinge on SpaceX. Invest wisely with The Motley Fool. Obtain stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.