SpaceX Tie-Up Rumors, IPO Talk, and Risks After Q1 Missed Delivery

For shares of Tesla Inc NASDAQ: TSLA continues to trade on the back foot, investors are right to wonder if the company's best days are behind it.

Despite making a lot of noise about his vision of transforming Tesla into a leading robotics and autonomous company, CEO Elon Musk has so far failed to convince investors that this will happen anytime soon. Meanwhile, the company continues to struggle with its core business of selling electric vehicles (EVs), with reports earlier this week indicating that Tesla missed its Q1 delivery targets.

With signs of its legacy business continuing to shrink, and its futures business showing little sign of picking up steam, it's perhaps not surprising that the company may be looking at other ways to stay relevant. The past few weeks have seen some rumors gain momentum, which, if true, could do just that.

The rumors fuel speculation that Musk is looking to consolidate parts of his broader ecosystem, possibly including some sort of Tesla-SpaceX combination.

SpaceX is reportedly on track for what could be a record-breaking IPO later this year, and if Tesla can ride the hype, the stock could reverse this decline.

It all sounds very exciting, but the real question is what's driving the conversation, and what the upside and downside might look like if the idea ever moves from rumor to reality.

Why the SpaceX Merger Story Is Gaining Credibility

The possibility of a Tesla-SpaceX merger should not come as a surprise, as Musk has shown a clear willingness to merge his companies when it makes strategic sense.

When SpaceX announced on Feb. 2 that xAI—Musk's AI company behind the Grok chatbot—joined SpaceX, it became clear that there is a growing overlap in all the computing infrastructures, autonomous concepts, and artificial intelligence (AI) capabilities used by the pair and Tesla itself.

That makes the idea of ​​Tesla finally being part of that structure more credible than it would have seemed a year ago. At least from a strategic perspective, the upside case is easy to understand. The combined entity of Tesla and SpaceX will combine the best of both, each a trailblazer in their respective fields, into one platform. Tesla will bring its work to robotics, fully self-driving, and energy storage, while SpaceX will have a global satellite infrastructure and unmatched launch capabilities.

This is ultimately a narrative expansion. Tesla is already valued as more than an EV company, and the merger will reinforce the idea that it is creating a broader technology platform. If investors buy into that, it supports the case for higher multiples over time.

The Risk of Killing Will Be Real

The challenge is that so far this year, investors haven't quite bought Tesla's pivot narrative. The financial rationale for the potential merger is less clear than the history based on the application. Tesla's valuation is still primarily driven by its advances in autonomous driving, AI, robotics, and energy, all of which can be developed in tandem but none of which are dependent on each other.

At the same time, with what is intended to be the largest IPO in history, it can't be said that SpaceX needs Tesla's balance sheet to keep scaling. In fact, if anything, combining teams and programs from what will soon be two separate companies could slow SpaceX down when it needs to move quickly.

And that's all before you even get to the execution of the question. Tesla is already navigating a complex transition, balancing margin pressure in its EV business while investing heavily in AI and autonomy. Adding another large, capital-intensive business to focus on risk management at a time when execution needs to be tighter than ever.

What's Coming Next—And What Investors Should Focus On

The thing is, even if Wedbush analyst Dan Ives believes that Musk plans to create a “long-term AI juggernaut,” full integration remains unlikely in the near future.

A more logical approach is continued collaboration across Musk's companies, with shared investments in AI, infrastructure, and potential hardware.

This allows Tesla to benefit from the wider ecosystem without taking on the full complexity of integration. It also puts both companies in a better position to succeed down the line, if they decide to go ahead with it.

From a stock perspective, that would mean Tesla's key drivers remain unchanged. Its ability to bounce back from recent analyst targets, such as $420 for Canaccord Genuity or $600 for Wedbush, will depend on confirmed upside and follow-through.

The stock's recent pullback has helped dampen expectations, creating room for upside if execution improves in the near future. That's still the core investment story today, much more so than consolidation that may or may not happen in the coming years.

Before you consider a Tesla, you'll want to hear this.

MarketBeat tracks Wall Street's top and most effective research analysts and the stocks they recommend to their clients every day. MarketBeat identified five stocks that top analysts are quietly whispering to their clients to buy before the broader market catches on… and Tesla wasn't on the list.

Although Tesla currently has a hold rating among analysts, senior analysts believe these five stocks are better buys.

View Five Stocks Here

Learn the basics of option trading and how to use them to improve returns and manage risk with this free report from MarketBeat. Click the link below to get your free copy.

Get This Free Report