Elon Musk is reportedly considering merging SpaceX with his Tesla (NASDAQ:TSLA) stock, or a tie-up with artificial intelligence firm xAI. According to reports, it’s just a feasibility study for now with previous messaging suggesting SpaceX would go public later this year — supposedly to coincide with a planetary alignment and the entrepreneur’s birthday.
Tesla stock rose following these reports. There are plenty of possible explanations, but one stands out: many investors want exposure to SpaceX, and buying Tesla could now be one route to achieve that.
And I can see how it’s tempting. Like others, I also want a slice of the SpaceX pie. According to reports, a SpaceX IPO would value the business around $1.5trn. Coincidentally, that’s also the current market value of Tesla.
A timely reminder
I hope these developments are a timely reminder for investors that Tesla isn’t really about the cars. Yes, the firm sells a lot of cars, but the valuation — 196 times forward earnings — is astronomical. In fact, it’s more than 10 times higher than the industrials sector average.
So, what are investors buying?
Well, one part is the robotaxi. If Tesla dominates in autonomy, it stops being a car company and starts to look more like a transport platform, with recurring, software-like revenues layered on top of a massive physical fleet. That alone would help explain why investors are willing to suspend disbelief.
But there’s a lot more to this.
Autonomous driving feeds directly into Tesla’s other ambitions — most obviously Optimus. It’s already using the humanoid robot in its factories. More generally, it’s ability to perform repetitive tasks and operate autonomously has obvious commercial applications on Earth. But it also solves a much bigger problem.
If humans are ever going to establish a presence on Mars, which Musk is desperate to do, robots will be the first transported on SpaceX’s starships. For one, they’re attritable and as the first missions will experience landing issues, it’s better to lose robots than humans.
These robots can build the first settlements on Mars, paving the way for the humans that come later.
What’s more, Tesla’s grid-scale batteries are capable of powering small towns. All together, Tesla begins to resemble the industrial and energy backbone of SpaceX’s interplanetary vision — not just a carmaker with a very punchy valuation.
Something to consider?
Personally, I believe investors should play what they see in front of them. That’s why I like to invest in companies where there appears to be a clear difference between the current value of the stock and its fair value.
However, I appreciate the notion of owning something which will likely play a major role in the colonisation of resource-rich Mars is very appealing. That said, I prefer to get my exposure through Scottish Mortgage Investment Trust which is heavily exposed to SpaceX.
I’m not convinced by Tesla value proposition just yet, but I may be proven wrong. For now, I’m not sure it’s worth considering.
