Wall Street: Musk's "two major aces" are highly likely to merge

Wall Street analysts now widely believe that the likelihood of a merger between Elon Musk's two largest companies — Tesla and SpaceX — is growing, even though achieving it will not be straightforward.

Some analysts also predict that if the merger is realized, it could drive Tesla's stock price up by 20% to 30%.

The Potential Merger

Tesla and SpaceX have maintained a collaborative relationship for years, but their partnership has only deepened further recently. This past March, Musk announced that Tesla would partner with SpaceX on a project aimed at building a factory capable of producing 1 terawatt of computing hardware annually.

Louie DiPalma, an analyst at investment bank William Blair, said in a note to clients on Tuesday that this seems to "foreshadow" a possible acquisition of Tesla by SpaceX. Such speculation among investors has been rampant for months. According to media reports in May, internal discussions about merging his companies had taken place within Musk's circle.

Musk has publicly stated that his companies are "moving toward convergence." According to SpaceX's prospectus, SpaceX said it plans to collaborate with Tesla on other "strategic cooperation" areas, and Tesla holds a partial stake in SpaceX.

"There is no question that there are synergies between Tesla and SpaceX, and that will be the case in our future," SpaceX COO Gwynne Shotwell said last month.

A team led by JPMorgan analyst Doug Anmuth said in a client note on Tuesday that there are alternatives to an all-stock acquisition of Tesla.

Anmuth said merging SpaceX and Tesla into a new company could achieve a clearer "merger of equals," while a phased or partial merger could reduce the risk of regulatory and governance hurdles. JPMorgan noted that SpaceX could also offer a cash-and-stock transaction that might deliver a higher premium for Tesla investors, but could further strain SpaceX's already tight free cash flow.

Some analysts predict the merger could happen as early as 2027. Baird analyst Ben Kallo said in a report last month that the merger could occur within 12 to 18 months. Anmuth said the likelihood of such a deal would rise "significantly" in the next one to two years, but he does not expect the merger to happen anytime soon.

"Given the governance asymmetries, valuation gaps, and regulatory complexities, we expect execution to lag the most optimistic expectations," he wrote.

Anmuth also said the merger "will not be easy to pull off":

SpaceX is a large defense contractor, which means its relationships with other companies will be subject to intense scrutiny.

Another potential concern is Tesla's tight business fundamentals, with a reference to the company's 2025 performance. Tesla will report its Q2 earnings on July 22, at which point investors will gain full insight into its performance trajectory for the first half of 2026.

Tesla Stands to Benefit

According to Tom Narayan, an analyst at RBC Capital Markets, the main reason SpaceX wants to merge with Tesla is "operational collaboration." After accounting for the impact of the potential merger, he raised Tesla's target price from $475 to $500. This new target implies a 22% upside from current trading levels.

Narayan pointed out that the Terafab chip project, SpaceX's reliance on Tesla's Megapack energy storage products, and the two companies' collaboration on AI training are all sufficient to justify a closer connection. He said SpaceX will likely acquire Tesla in an all-stock transaction, with Tesla's valuation "likely" carrying a 20% to 30% premium.

He added: "The Tesla board may be inclined to offer a premium to compensate for the loss of voting control, especially since Musk could hold more than 50% of the voting control of the combined entity." He noted that the two companies share only two common executives: Musk and Ira Ehrenpreis, a long-time Tesla board member who joined SpaceX this past February.

Separately, RBC initiated coverage of SpaceX on Tuesday with a target price of $225, which implies roughly 51% upside from current trading levels.

This article is from the WeChat Official Account "CLS", author: Huang Junzhi, published with authorization from 36Kr.