SpaceX Is Down 32% From Its High. 4 Reasons Why a Merger with Tesla Would Make SpaceX a Better Long-Term Buy.

On June 22, Space Exploration Technologies (NASDAQ: SPCX) had its worst session as a public company -- falling 16.4% to close at $154.60 per share. That puts SpaceX down 31.5% from its intraday high of $225.64 per share.

Here are four reasons why SpaceX should merge with Tesla (NASDAQ: TSLA), and why it would make the growth stock more appealing for long-term investors.

Image source: Getty Images.

1. Simplification

If you've tuned into recent presentations by SpaceX and Tesla CEO Elon Musk, you've probably noticed that at times it's difficult to distinguish which efforts fall under SpaceX versus Tesla.

While Tesla has been a public company for longer, SpaceX has been the one slowly gobbling up Musk's other efforts. In 2025, xAI bought social media platform X. Then, earlier this year, SpaceX bought xAI. But the bulk of Musk's robotics, energy storage, and autonomous vehicle ideas are under Tesla.

Merging Tesla with SpaceX would bring all these ideas (and creativity) under one umbrella.

2. Terafab collaboration

In March, Elon Musk gave a presentation on a collaborative effort between Tesla, xAI, and SpaceX (Intel joined in April) to build the world's largest chip plant called Terafab. In the presentation, Musk discussed why Tesla, xAI, and SpaceX are builders and have already accomplished once impossible feats. Again, this is yet another nod that "we" refers to the collective efforts of Musk-led companies.

SpaceX is designing its AI compute satellites to operate on Nvidia graphics processing units and has a reference design for Alphabet's Tensor Processing Units (TPUs). But AI compute capacity will be a limiting factor in scaling AI satellite production. xAI built the world's first gigawatt-scale AI training cluster, and SpaceX believes it is the only company capable of building orbital AI compute at scale. But that will depend on compute availability and SpaceX's ability to launch heavy payloads. Similarly, Tesla's autonomous driving technology and Optimus robots are incredibly compute-intensive.

Bringing at least a portion of the chip supply in-house rather than relying on external suppliers is in the interest of SpaceX and Tesla. Putting Terafab under one entity instead of separate companies could speed up its construction and simplify its financing. Musk expects Terafab to be around 100 million square feet, which is 10 times the size of Tesla's Giga Texas factory. One terawatt of compute output per year is double the current U.S. annual consumption. So if successful, Terafab could ensure that SpaceX and Tesla can pursue their long-term goals without relying on the chip industry to increase production.

3. xAI is a key input for Tesla's growth

xAI and its Grok large language models (LLMs) are already integrated with Tesla's self-driving technology and energy storage platforms. In March, Musk posted on X about a collaboration between Tesla and xAI called Macrohard or Digital Optimus. Digital Optimus will run on Tesla's AI4 chip and use Grok LLMs. If successful, Optimus could transform digital workflows rather than being solely a robotics solution for automating repetitive physical tasks.

So, while SpaceX's acquisition of xAI makes a ton of sense for SpaceX scaling AI data centers, Tesla is also heavily dependent on xAI. Merging SpaceX and Tesla would give xAI a straightforward path to support both companies, rather than having Tesla serve as both a partner and a customer.

4. Energy storage in space

SpaceX's boldest idea is to build constellations of AI compute satellites in space. In theory, these orbital data centers would harness the power of free, predictable solar energy at radiation levels higher than those at Earth's surface.

In its Form S-1 filing with the Securities and Exchange Commission, SpaceX said it could launch millions of AI satellites in sun-synchronous orbit (SSO). SSO means orbiting Earth's poles so that satellites pass over locations at the same local time each day. For example, a point along the equator every 100 minutes. This route provides predictability, but it can also cause significant light pollution when satellites pass over dark skies at night. Most current Starlink satellites don't use SSO.

Tesla could theoretically help SpaceX meet the power-hungry needs of orbital AI data centers without operating in a route that would be invasive to nighttime sky viewing for the naked eye and astronomers. SpaceX AI satellites equipped with Tesla energy storage technology could allow them to avoid SSO and spend more time in Earth's shadow at night, reducing light pollution and interference with observatories. However, energy storage systems would likely add weight to payloads, not to mention battery life issues.

Still, SpaceX and Tesla would likely benefit from collaborating on hardware systems and energy storage for AI compute satellites.

Merger updates could be coming soon

While investors solely interested in SpaceX's vision, rather than Tesla's, and vice versa, may balk at a potential merger, it ultimately makes the most sense for both companies.

The reasons extend far beyond focusing Musk's attention on one company. SpaceX and Tesla are collaborating on Terafab, and Tesla's energy storage solutions could prove valuable for SpaceX. SpaceX-owned xAI is deeply ingrained in Tesla's autonomous vehicle and humanoid robot efforts.

Investors should pay close attention to SpaceX's upcoming earnings call to see if Musk discusses a potential merger and what it could mean for SpaceX and Tesla investors.

Daniel Foelber has positions in Nvidia. The Motley Fool has positions in and recommends Alphabet, Intel, Nvidia, and Tesla. The Motley Fool has a disclosure policy.