Why Tesla Might Need to Merge With SpaceX Sooner Rather Than Later
Key Points
Rumors have been swirling about the possibility of a SpaceX-Tesla merger.
The move would be beneficial to both companies and enable them to benefit from synergies.
Tesla's stock may not be as compelling an option for growth investors these days.
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The long-awaited SpaceX (NASDAQ: SPCX) IPO has arrived to much fanfare, with shares of the rocket company jumping nearly 20% in its first day of trading on Friday and the rally continuing on Monday. But now with that in the books, investors may be turning their attention to another highly probable event: a potential merger involving SpaceX and Tesla (NASDAQ: TSLA). Both companies are run by Elon Musk, they work on overlapping projects, and there's a lot of room for potential synergies if they combine.
Rumors of a possible SpaceX-Tesla merger have been growing in recent weeks. And here's why, particularly for Tesla, there may be motivation to get it done sooner rather than later.
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Tesla's growth story may not be as appealing anymore
Although Tesla generates the majority of its revenue from automobiles and is technically an electric vehicle (EV) stock, it trades at an oversized earnings multiple because investors are bullish on its vision beyond just EVs. Robots and opportunities in artificial intelligence (AI) have been captivating investors in recent years, with the growth story persuading them to look past where the business is today and instead focus on the long-term vision.
However, that vision may not be as alluring anymore now that SpaceX stock is available. Between space, AI, and communications, there may be more compelling opportunities for investors with SpaceX than with Tesla. Tesla's stock is down around 9% this year and may suddenly not be as exciting a growth stock to own. While robotics is an intriguing and attractive growth opportunity, it may not be enough to convince investors to buy Tesla's stock, especially with its core EV business coming under pressure from growing competition.
The risk is that, in the near future, the U.S. market may see more affordable EVs enter the market, which could further strain its margins and growth prospects. And if its financials worsen in the process, the stock may head for an even greater decline. That downside risk could provide an added motivation for the company to merge with SpaceX soon, so that they can pool their resources and not compete with one another for investors' dollars.
A merger could happen soon
There have been reports that a merger between SpaceX and Tesla could occur as early as next year. And between Tesla's competitive position potentially eroding and SpaceX needing plenty of cash to fund its growth ambitions, a merger between the two companies may indeed make a lot of sense, especially given that the two businesses are working on Terafab, a giant chip factory, and other initiatives together.
While a merger is not guaranteed, it seems highly likely to happen. The good news is that if you want exposure to both of these stocks, you may only need to own one of them, as it may only be a matter of time before a merger takes place.
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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.
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