Musk is attempting to merge SpaceX with Tesla, a deal that might benefit Musk personally, but for shareholders especially Tesla shareholders the benefits are not obvious. Once merged, Musk's major businesses would fall under a single entity, consolidating the sprawling, scattered commercial empire of the world's richest person.
On the positive side, the merged group would be enormous in scale with diversified revenue streams, potentially lowering its overall cost of capital and making it easier for Musk to raise funds for his envisioned multi-planetary sci-fi ambitions. But the risks are equally prominent: bundling together satellite operations, social media, robotics, artificial intelligence, solar energy, and electric vehicles could create a company with fragmented logic and confusing complexity. Apart from Musk's personal vision, there is a lack of strong connections between the businesses. For investors trying to make sense of its value, a conglomerate discount would be almost inevitable.
Musk said Tuesday that merging the two companies he runs "would be a good idea." Market rumors about this had already been circulating for months. He added that both companies have established special committees to study the proposal. The two businesses already have dealings with each other: Tesla sells vehicles, batteries, and power infrastructure to SpaceX; the two are also collaborating on Musk's chip project Terafab, which could benefit both simultaneously. Tesla's newly released flying Roadster sports car is equipped with SpaceX thrusters; Tesla has also invested $2 billion in SpaceX.
However, from a financial and investment perspective, it is difficult to see why a further merger would be necessary beyond their existing partnership and customer relationship. Take the Tesla Roadster, for example 鈥?production is not expected until 2028, and it will not be mass-produced. More critically, the SpaceX thruster system itself may be more of a marketing gimmick with limited real-world applications. Other potential synergies remain in the distant future. For instance, Tesla's humanoid robots could someday be used in space projects; AI technology developed by SpaceX could be reused across the group; solar and battery technology might play a role in Mars missions. But the problem is that investors can hardly incorporate these distant visions into a practical valuation model.
Terafab may be the most clear-cut joint investment direction that could benefit the entire group in the short term, but the project is extremely challenging. Musk said Tuesday that the project aims to produce its first test chips next year and targets mass production in the second half of 2028. However, he acknowledged that this timeline is "highly uncertain," given the complexity of building new chip production lines. Combined with Musk's track record of repeatedly delaying grand plans, investors must heavily discount this timeline and view it with caution.
For a diversified conglomerate to win investor approval, its businesses should ideally share similar financial characteristics. Berkshire Hathaway is a classic example: the company is built on businesses with stable cash flows and reliable earnings. But if the underlying operating logic of each segment is vastly different, the investment case becomes extremely complicated 鈥?exactly the situation with SpaceX's current collection of loosely connected businesses.
Deutsche Bank analysts, in an August sum-of-the-parts valuation report on SpaceX, assumed an enterprise value multiple of 5 times revenue for its AI business, while the connectivity business 鈥?including Starlink satellite internet 鈥?commands an enterprise value multiple of 58 times revenue. This huge disparity makes overall valuation difficult: should investors focus more on the capital-intensive AI business or the steadily growing internet service business? How should the X social platform and proprietary large language models be priced? Deutsche Bank analysts themselves maintained a bullish stance. Based on their sum-of-the-parts valuation, they set a SpaceX target price of $235 per share, about 47.5% above Wednesday's closing price.
But this analysis can also be read another way: the current stock price already implies a significant conglomerate discount; once merged with Tesla, that discount could widen further. This means the combined entity's overall value would likely be lower than the two companies' current combined valuation of approximately $3.66 trillion. In this scenario, Tesla shareholders bear the greatest risk of losses. If other segments of the merged group run into trouble, Tesla's cash flow could be diverted to prop them up, draining resources that could have been invested in its own growth.
SpaceX is already a diversified conglomerate: earlier this year, Musk folded his AI business and social platform X into SpaceX. By contrast, Tesla is more focused, primarily in electric vehicles, solar energy, and power infrastructure, with clear business synergies. Even so, the core bull case for Tesla is already betting on long-term value drivers like robotics and autonomous driving. With the merger idea becoming reality, Musk's commercial empire would only become more complex and more speculative in nature.
Wall Street was once broadly skeptical of large diversified conglomerates, but Berkshire Hathaway overturned that bias through the market's extremely strong confidence in Buffett himself. Musk's enormous fan base carries a similar faith premium. From Musk's perspective, a merger would bring all his commercial assets under one roof 鈥?a goal he has pursued for decades. As far back as the dot-com bubble era, Musk envisioned his financial startup X.com as a one-stop trading and investment platform. After acquiring Twitter in 2022 and renaming it X, he revived that concept, hoping to turn X into a super app combining messaging and financial payments. But to this day, X remains essentially just a content publishing platform, with all other visions unrealized.
Musk's visions have always been grand, but they do not always come to fruition. Once merged, this tangled, massive commercial conglomerate would be a super bet on Musk himself 鈥?his vision and his management capabilities. Many investors will be excited by this opportunity, but many others will choose to steer clear.
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