Is Tesla or SpaceX a Better Bet for Musk Exposure?

Cyril

There’s no better time for SpaceX to acquire Tesla than now. So will it? One of the first things any aspiring rocketry entrepreneur needs to thoroughly understand is Newton’s Third Law. Put succinctly, for every action there is always opposed an equal reaction. Put relevantly, you’ve got to eject a whole lot of mass along the way to space. And put poetically, the only way humans have figured out how to move forward is to leave something behind. Elon Musk knows this. Finding a use for the things that had historically been discarded on the way to orbit remains the very bread and butter of the firm. This is why a report from the Wall Street Journal about some internal conversations at Tesla was so very interesting. According to the WSJ, Tesla has for years been operated in a way that its Chinese business could be easily separated from its United States business in the event of a geopolitical issue or an M&A opportunity. The news is that some Tesla execs have been instructed to prepare for the separation of the China business because of a long-buzzed-about merger possibility where the assets of Tesla will be acquired by SpaceX, a consolidation of Elon’s empire. Theoretically, great: being the publicly-traded asset that allows investors to buy into the present value of future free-cash flows, and, arguably more importantly, the idea of Elon Inc. was super for Tesla, it’s not readily obvious the market needs two such assets. Public markets have traditionally been phenomenal for Elon Inc. because there’s been no shortage of techno-optimists willing to fund his visions despite scattershot operational performance. With interest divided between SpaceX and Tesla lately, there hasn’t been enough fuel to propel either stock higher. Practically, there are issues: mainly because SpaceX is a defense contractor (sales to the U.S. government are 20.9% of its business last year) and Tesla has a massive China presence (the Middle Kingdom accounted for 18% of sales in the first half, good for Tesla’s second-largest market, and it is home to two major factories.) In any tie-up, SpaceX would be the obvious contender for senior partner. Musk built the company specifically to give him effectively permanent voting control, with him alone controlling 93.6 percent of Class B super-voting shares and holding well over 50% of the voting power. It’s also just bigger, which is relevant in any matter of physics. The timing is interesting. SpaceX currently has about 5% of its shares on public markets, about 640 million shares. The first lock-up expiration will come two days after the company reports its earnings, currently slated for Tuesday, when up to 911.5 million shares will become available for trading, and then those lockups will continue to expire as time goes on. If SpaceX were to acquire Tesla, the incentive would be to do so sooner rather than later, before Musk’s allies and financial backers consider cashing out some of those shares. If it were to be a for stock deal, SpaceX would ideally want to do that acquisition before there was any selling pressure on its shares. Just ask CoreWeave. Either way, if these companies are going to merge, the sooner the better. Though Musk pushed back on the story, if the part of Tesla that operates outside of China is preparing for ejection, that may be a sign that Tesla is preparing to undergo an interesting maneuver and perhaps even an orbital rendezvous.