This FTSE 100 stock has £1bn in Tesla and SpaceX. Is it a buy?

This FTSE 100 stock has around £1bn invested in two companies run by Elon Musk. Is it a buy today, or is that large bet too risky?

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There aren’t many ways for investors to gain exposure to both Tesla (NASDAQ: TSLA) and SpaceX at the same time. While I can easily invest in Tesla shares today, Elon Musk’s rocket firm remains a private company. However, this FTSE 100 stock has £1bn invested across both companies, giving me an indirect way of investing in their growth. Should I buy the stock today?

Finding Tesla

Until last year, James Anderson was the long-time manager of Scottish Mortgage Investment Trust (LSE: SMT). Under his tenure, the aim of the trust was to find stocks which had the potential to go up many times in value.

In 2013, he invested in a quirky little firm called Tesla, which was aiming to build the world’s first desirable electric vehicle (EV) brand. Adjusted for stock splits, the shares were trading for around $2.

Most investors thought Tesla stock was overvalued at the time (and still do now). However, Anderson backed Musk’s vision for the company and held the position through thick and think. And though the trust sold most of its holding in 2020 — making a return of over 100 times its original investment — Tesla remains a top portfolio holding today.

Support rewarded

This patient backing of Tesla was rewarded in 2018 when Baillie Gifford (who run the trust) were invited to participate in SpaceX’s latest funding round. Unlike in public markets, large private companies like SpaceX get to chose their investors. The company wanted long-term backers, and Scottish Mortgage had proven its credentials with Tesla in that regard.

The £10.7bn trust has topped up its position in SpaceX multiple times since. The holding today makes up 3.6% of its portfolio. Combined with Tesla, the stake is worth £1bn.

SpaceX and Tesla today

Last month, SpaceX was valued at $137bn. Why so much? Well, the company is pioneering the recycling of rockets, which is enormously reducing the cost of getting to space.

Its Starlink satellite-internet operation now has 3,300 tiny satellites in orbit. This has the potential to provide high-speed internet access to the whole planet (and earn many billions in revenue). Starlink is aiming for a constellation of 42,000 satellites.

Separately, SpaceX is preparing to launch Starship, the most powerful rocket in history. NASA awarded the company a $2.9bn contract in 2021 to build a lunar lander as part of its mission to return astronauts to the moon.

Meanwhile, Tesla has succeeded spectacularly in its ambition to create a global EV brand. This week it reported $24.3bn in revenue for Q4 2022, a 37% year-on-year increase. Its market cap is back above $500bn. Yet the company seems to be scratching the surface of its long-term potential in EVs, autonomous driving, and solar energy.

Will I buy the stock?

Though substantial holdings, Tesla and SpaceX are only part of Scottish Mortgage’s portfolio. It also has positions in Moderna, Stripe, NIO, and many other growth stocks.

Today, the shares are trading at an 8% discount to portfolio net asset value (NAV). Of course, there’s always a risk that this discount widens further. However, I think it does provide some margin of safety for investors investing in shares today. I intend to buy some myself soon.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Ben McPoland has positions in Moderna, Scottish Mortgage Investment Trust Plc, and Tesla. The Motley Fool UK has recommended Tesla. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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