A SpaceX-Tesla Merger Seems Inevitable. Here are 3 Things That Could Get in the Way

Many analysts and investors expect a merger to take place between Space Exploration Technologies Corp (NASDAQ:SPCX) and Tesla (NASDAQ:TSLA), it's just a matter of when it might happen. Elon Musk is the CEO of both companies, and they're often working on overlapping projects. A merger appears to be inevitable and is likely already priced into their respective valuations.

While it's likely that a merger will be announced in the near future (i.e., within the next 12 months), that doesn't mean it's a surefire thing. Here are three things that may get in the way of the merger obtaining regulatory approval.

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Tesla's reliance on Chinese manufacturing could be the biggest risk

Electric vehicle (EV) maker Tesla relies on Chinese manufacturing, with a large Gigafactory in Shanghai, which has produced over 4.5 million EVs. The Chinese market is also a big one for the company.

Close ties to China pose a concerning geopolitical risk, given that SpaceX has a close relationship with the U.S. government and its space programs. It may raise questions about national security, especially with a flurry of disputes between the U.S. and China in recent years.

While having operations alone in China may not be enough to stall the merger, it could at the very least delay it until concerns related to these issues are put at ease.

The price has to be right for Tesla shareholders

Musk has a lot of sway with investors, but simply advocating for the deal may not be enough to ensure enough shareholders are on board. There needs to be at least 50% approval from Tesla shareholders for the deal to go through, which means pricing will be important to ensure widespread support.

This again doesn't seem to be a big issue, but given that neither one of these stocks is trading at low valuations, the price may nonetheless affect how long the merger takes to gain approval, as shareholders may not be eager to support a deal that values an already expensive stock at an even higher valuation.

Antitrust issues may emerge in the auto industry

Although SpaceX and Tesla operate in separate industries, a merger between the companies could give Tesla a stronger competitive advantage over other automakers, particularly given SpaceX's artificial intelligence capabilities. Some may argue that it would be an unfair advantage.

Officials in South Korea, for instance, believe that if the deal is announced, it will be taken seriously and require a detailed review. According to Lee Hwang, who previously worked with the Korea Fair Trade Commission, "Korean antitrust officials will be wary of the merger. They will take the merger very seriously."

This type of scenario may play out in other countries as well.

The merger may take place, but it may not make either stock a better buy today

There is always going to be uncertainty around a potential merger, especially when the companies are as large as Tesla and SpaceX, as they impact multiple countries and industries. The complexity of the deal is sure to add time to when it may ultimately be completed, assuming, of course, that it does end up happening.

However, buying either stock in hopes that a merger will take place is not necessarily a recipe for future gains. Both stocks are trading at high valuations, and I'd consider them highly overvalued, with a lot of future growth already priced in. A merger between the two companies may not result in either stock surging in value, since the market is already likely to have factored it into both companies' valuations. There could be some upside depending on what the agreed price ends up being, but that can be extremely difficult if not impossible to predict.

While a merger between SpaceX and Tesla seems highly likely, it won't be without bumps along the way, and I don't think it makes either stock a better buy right now.

David Jagielski, CPA has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Tesla. The Motley Fool recommends Space Exploration Technologies. The Motley Fool has a disclosure policy.