A new flying sports car may be exactly what CEO Elon Musk needs to sell Wall Street on a merger between Tesla and SpaceX.
The electric-vehicle maker on Thursday reintroduced the Roadster 2.0, a pricy car that the company showed was capable of hovering in air with the aid of cold-air thrusters designed by SpaceX. The event was nine years in the making, but it appears to have paid off.
CFRA analyst Garrett Nelson said the “riveting” unveiling helped convince him to flip to a positive stance on Tesla’s stock. He raised his price target to $475 a share from $385 a share, with the new target implying room for the stock to rise 30% from current levels.
“With perception that the ‘Musk Magic’ is back after a string of uninspiring events and with sentiment at an inflection point, we see little standing in the way of the consummation of a merger to create ‘Elon Inc.,’ which we think has long been part of Musk’s master plan,” Nelson wrote in a note to clients on Friday.
Musk is the CEO of both companies, and he’s a major shareholder of each as well. During Thursday’s event, Musk called the Roadster the “culmination” of a close collaboration between Tesla and SpaceX engineers.
While Wall Street is divided on when Musk will actually push to combine the crown jewels of his empire, Nelson thinks there’s a 90% chance it happens by the end of next year. It would be Musk’s second major combination of his companies in as many years, after SpaceX acquired xAI in February.
Dan Levy, an analyst at Barclays, expects a merger announcement before Tesla’s annual general meeting, which he said has to happen by early December. While a merger could be pitched with a focus on artificial intelligence, given the companies’ work on that front, “control is increasingly what may motivate Musk” to pursue a combination, he said in a note to clients on Wednesday.
Representatives for Tesla and SpaceX did not immediately return requests for comment. When asked about a merger during a recent earnings call, Musk told investors that there was “more and more overlap” between the companies, but that he couldn’t discuss a combination on that call.
Tesla shares dropped 2.1% on Friday, while SpaceX’s stock fell 1.7%.
The Roadster was first unveiled by Musk in late 2017, but Tesla repeatedly pushed back planned demonstrations of its progress. On Thursday, Musk said it would go into production in 2028, whereas the initial target was for 2020.
It’s still unclear when Tesla aims to begin delivering the car to customers, or even how much it will cost. Tesla is currently taking $50,000 reservations for a “Performance” version of the Roadster, which would come without the SpaceX thrusters.
In 2017, Tesla said it would sell 1,000 “Founders Series” models, each of which required buyers to put down $250,000 at the time. At least one of those customers said his reservation was converted into an order for a Roadster capable of using SpaceX thrusters to reach high speeds. Buying a Roadster that can actually hover in the air requires an invitation from Tesla, according to its website.
“Musk is blending the future of mobility together by integrating auto and rocket technology; at the very least it’s a subtle plant in investors’ minds making an engineering efficiency argument for a merger,” Bill Birmingham, head of research at exchange-traded-product provider Rex Financial, told MarketWatch over email.
Comments