Now That SpaceX Is Public, Should You Ditch Tesla Stock?

Space Exploration Technologies (NASDAQ: SPCX) is finally public. Tesla (NASDAQ: TSLA) stock has been public for 16 years. Both companies were set up and are CEO'd by Elon Musk, but SpaceX is clearly the newer, shinier toy today -- and a lot of investors are probably wondering whether the time has come to put Tesla on a shelf and take out SpaceX to play with instead.

And so the question today: Should you ditch Tesla stock in favor of SpaceX?

Image source: The Motley Fool.

SpaceX and Tesla: the similarities

Broadly speaking, both SpaceX and Tesla are "tech stocks." Both companies were established in their current forms by tech wunderkind and world-first trillionaire Elon Musk, who leads both companies as CEO.

SpaceX spends a lot of time working on space (as one might expect) and the corollary industry of satellite communications. As its prospectus makes clear, however, SpaceX sees its greatest future revenue opportunity in artificial intelligence. Out of the company's entire $28.5 trillion "total addressable market" (TAM), says Elon Musk, $26.5 trillion will come from building AI infrastructure, providing AI services, and selling AI subscriptions.

Tesla is a little different.

From its origins as an electric car company, Tesla has branched out into at least two tangentially related fields. First, in solar power and energy storage through its 2016 acquisition of SolarCity, and more recently, in robotics with the unveiling of Optimus in 2022.

Of these three fields, Energy Generation and Storage is currently Tesla's most profitable business, with a 30% gross profit margin, according to data from S&P Global Market Intelligence. But electric cars offer the greatest promise through subscriptions for autonomous driving software, sales of self-driving cars, and/or transportation-as-a-service. In public statements, Musk has predicted that robotic vehicles could drive Tesla's market capitalization to $5 trillion or more -- while a market for 1 billion robots per year could turn Tesla into a $25 trillion company!

SpaceX and Tesla: the differences

Broadly speaking, perhaps the biggest similarity that SpaceX and Tesla share (well, aside from their CEO) is that they're both valued very much on future prospects -- or what investors hope their future prospects might be -- AI riches in the case of SpaceX, and self-driving cars and humanoid robots at Tesla.

What's perhaps most curious, though, is that while both SpaceX and Tesla are priced based on pie-in-the-sky prospects that are incredibly difficult to value, the two stocks are priced very differently today.

The more mature company by far, Tesla today boasts just under $98 billion in annual sales, has been profitable since 2019, and earns an operating profit margin of 4.9% today. Tesla is self-funding, generating positive free cash flow of $7 billion annually, and it boasts enormous cash reserves to fund future growth -- nearly $30 billion more cash than debt on the balance sheet.

Contrast all this with SpaceX. Only five years younger than Tesla, SpaceX is still trying to figure out what it wants to be when it grows up. (Rockets? Satellites? AI satellites launched by rockets?) SpaceX generated just $19.3 billion in revenue over the past year (one-fifth of Tesla's haul), and lost nearly half that amount -- $8.7 billion. Thanks to a recent successful IPO, it's got more cash than Tesla does -- more than $100 billion -- but also more than $30 billion in debt. And SpaceX needs the cash cushion, because it's burning nearly $20 billion per year.

And yet, at $1.5 trillion in market capitalization, Tesla stock currently costs 25% less than SpaceX, which has a $2 trillion market cap!

What this means for investors

I'm the last person to argue that Tesla stock is a buy at 367 times trailing earnings. That said, it's pretty clear that SpaceX stock is even more overvalued than Tesla. For that matter, if, like most investors, you're valuing both stocks on their future prospects, Tesla's pie-in-the-sky projections are no less ambitious than SpaceX's.

That's two good reasons not to ditch Tesla stock in favor of SpaceX.

Now here's a third: According to the SpaceX IPO Prospectus, SpaceX already shares "engineering resources, intellectual property, and infrastructure across Tesla and SpaceX," and plans to "deepen [its] strategic collaboration with Tesla."

To me, this sounds like Elon Musk is contemplating merging SpaceX -- which has already merged with X and xAI -- with Tesla as well. In such a transaction, the richer SpaceX stock would almost certainly be used to buy the cheaper Tesla stock.

Indeed, that may be the strongest argument yet for not selling Tesla stock: SpaceX just might want to buy Tesla.

Rich Smith has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Tesla. The Motley Fool has a disclosure policy.