SpaceX–Tesla merger talk puts advisors on alert for dilution risk

Could a SpaceX and Tesla merger be under consideration for the world’s first and only trillionaire? SpaceX president and COO Gwynne Shotwell didn’t dismiss the possibility, saying that a mega-merger endgame could work in Elon Musk’s favor.

“That might make Elon’s life a little easier, actually. There’s no question that there’s synergies between Tesla and SpaceX in our futures definitely, there’s a convergence of kind of what we’re all trying to accomplish in the future,” Shotwell said in a June 12 interview with CNBC.

SpaceX completed the largest IPO in U.S. history on June 12, and began this week with a record-setting loss of $400 billion in market value. Tesla’s share price closed at $406 the day of SpaceX’s debut, and has since fallen to now trading around $385 per share as a roughly 16% year-to-date decline.

“If it's an all-equity deal, the whole game becomes dilution and position size,” Clint Sorenson, CEO and CIO of Texas-based Ascentis Asset Management, said in regards to portfolio impact of a Tesla-SpaceX merger. “Most advisor portfolios are already overweight a handful of mega-cap tech names through their benchmarks, and a merger like this only compounds that.” 

Sorenson added that client discussions have positioned a potential merger as a “long-term possibility, not an imminent event.” In a June 9 research note, Morningstar analyst Seth Goldstein wrote that “we wouldn’t be surprised to see a [merger] deal occur within a year of the SpaceX IPO,” adding that the case for SpaceX and Tesla merging makes further sense as both companies are investing heavily in artificial intelligence and building an AI supply chain.

“They're already interconnected,” Sorenson said of Musk’s tech empire. “These businesses sit at the convergence of three megatrends—deglobalization, AI, and energy dominance—and they share the same risks too. A collapse in AI-related demand and a popping of the current valuation bubble, driven in part by passive investing and price-taking, would be problematic for all of them at once.”

Experts expect that SpaceX, as the larger company by market valuation, would offer to trade its shares for Tesla shares to form the new company under a potential merger, according to The New York Times. SpaceX and Tesla are domiciled in Texas, where state law would require two-thirds of Tesla shareholders to approve a merger, and Musk already controls about 20% of the votes.

“There is a glaring key-man risk tied to a one-of-a-kind mind,” said Sorenson. “We think of Musk as a Buffett-variety allocator, with one distinction: Elon is a growth investor where Buffett is a value investor. Our response to concentration isn't emotional. If the position breaches the limits in the client's investment policy statement, we hedge or trim.”

Jacob Tally, an advisor at the Seattle-based RIA Prospero Wealth, would ask clients to consider if a “merger might already be priced into the stock,” should they be interested in investing in Tesla or SpaceX in anticipation of a merger. The conjoining of Musk’s businesses would result in a tech conglomerate valued around $4 trillion. 

Musk has already shown some precedent consolidating his businesses, such as when xAI was acquired by SpaceX in February. “I don't think anyone would be surprised by a [SpaceX-Tesla] merger at this point, given how you have each of these sides of his portfolio that have kind of accumulated several brands under them,” said Tally.

A SpaceX and Tesla merger would potentially span rocket building, artificial intelligence, the Starlink satellite internet service, electric car and truck manufacturing, battery production, solar energy hardware, and the social media site X. That’s to say nothing of Musk’s other ventures outside of SpaceX and Tesla, including brain-computer interface developer Neuralink and tunnel construction firm The Boring Company. 

“The positive side of the coin is that the combination would deepen an already powerful moat, solar energy, a satellite monopoly, battery storage, and data from X and potentially Neuralink, all feeding the AI advantage,” said Sorenson.