Could a SpaceX-Tesla Merger Happen Earlier Than Expected?

Earlier this year, Elon Musk merged two of his companies: xAI and SpaceX. Many investors also believe that a much larger merger may be inevitable, involving SpaceX and Tesla (NASDAQ: TSLA). While Musk has kept his businesses separate, they also work together on many projects, and it could certainly be beneficial for them to join forces.

Recently, there's been a growing discussion about the potential for a SpaceX-Tesla merger, as it may be more a matter of when than if it actually takes place. And investors may not need to wait years for it to happen; a merger could be coming as early as next year.

Why merging the businesses could make sense for both companies

Typically, businesses in similar industries might merge with one another in order to strengthen their dominance in a particular market. It's less common to see companies in different sectors, such as automotive (Tesla) and aerospace (SpaceX), come together. But that's a scenario that may very well play out soon.

The companies already share resources and work together on projects. A prime example of a collaboration involving xAI, SpaceX, and Tesla is a massive chip-building project called Terafab, which aims to become "the most epic chip-building effort ever."

For Tesla, a merger would enable the company to have a growth story that goes beyond just electric vehicles. While it also aims to produce humanoid robots, that may be too far away for investors to get excited. Tesla's stock has been declining this year, providing further evidence that investors may not be as bullish about the business of late. A merger with SpaceX could quickly change that.

The advantage for SpaceX would be access to greater capital. Tesla has a profitable business, and it generated $7 billion in free cash flow over the trailing 12 months. SpaceX is going to need cash to scale its business, and not only could Tesla's operations help fund that, but combined, that would mean easier access to investor capital because, whether investors want to invest in SpaceX or Tesla, the money would flow into a single entity.

Could a merger take place by next year?

There are plenty of reasons for Tesla and SpaceX to merge and work together. It makes so much sense that investors widely expect it to happen. And it may not necessarily take a long time. In fact, Dan Ives, an analyst at Wedbush, believes a merger may happen as early as 2027.

That would be an aggressive timeline, but it's a plausible scenario. Ultimately, that means that whether you invest in Tesla or SpaceX (whose shares will go public in a few weeks), you may end up getting exposure to both businesses in the not-too-distant future. The combined entity would be much more diverse, contain greater growth opportunities, but it may also come with greater risk and uncertainty. Those are just a few important things to consider, along with the details of a potential merger itself. That's why taking a wait-and-see approach may be ideal.

David Jagielski, CPA 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.