A proposed tie-up between Tesla Inc. (NASDAQ:TSLA) and SpaceX drew pushback from investor Gary Black, who argued the deal could destroy shareholder value through a conglomerate discount and lacks a compelling strategic rationale.
Black said in a post on X that investors are relying on vague “AI synergy” arguments to justify the combination, but he believes the market would likely value the merged company at the lower of the two valuation multiples.
Debate Around TSLA, SPCX Merger
Black wrote that investors cheering a combined company are leaning on a familiar promise: that putting two big “AI” stories together creates extra value.
He said that argument falls apart when almost any tech narrative can be packaged as an AI angle, citing companies such as Salesforce Inc. (NYSE:CRM), Dell Technologies Inc. (NYSE:DELL), and Marvell Technology Inc. (NASDAQ:MRVL) as examples from earnings-season messaging.
The Hidden Risks Of SpaceX-Tesla Merger
Supporters of a merger often point to Tesla’s AI ambitions and SpaceX’s growing focus on space-based AI as evidence the companies could benefit from closer integration.
SpaceX’s own AI storyline is also getting louder, with Musk positioning the rocket company as a leader in space-based AI as it prepares for an IPO that has been reported for June. That kind of narrative is exactly what merger supporters might point to when they claim the two companies would be stronger together, Black argued.
Why Would SPCX Shareholders Agree To TSLA Merger?
Black’s bigger issue was arithmetic: he argued that a merger could hurt shareholders if the market values the combined company at the lower of the two valuation multiples.
“Why would a $SPCX investor other than maybe Elon who might presumably prefer to be CEO of 1 rather than 2 megacap companies go for that?” Black asked.
He used an example in which a higher-multiple SpaceX acquiring a lower-multiple Tesla would pull the combined company toward Tesla’s valuation multiple, reducing the merged enterprise value.
Black argued that even if Tesla and SpaceX were each worth $1.5 trillion on a standalone basis, the combined company could trade at a lower multiple, implying a post-merger valuation of $2.25 trillion and a 20% to 25% hit to Tesla’s stock value.
Black also said SpaceX’s cash flows are uncertain right now, another factor he believes would weigh against paying a premium multiple inside a conglomerate structure.
Understanding Valuation Dynamics In Mergers
Black said investors ultimately pay for cash flow and execution, not simply a larger narrative. He added that his experience is that merged companies typically do not trade at a blended multiple that reflects each legacy business’s growth profile.
He said the market generally applies what he called a conglomerate discount, adding that Berkshire Hathaway is a rare exception.
Black added that if SpaceX were the acquirer, Tesla shareholders could see a near-term pop, but he warned that investors who bought Tesla for “EVs, autonomy, and robots” could decide to exit if the company’s identity shifts.
Skepticism Around TSLA, SPCX Merger Not New
The skepticism surrounding the potential merger is not new. In a previous post, Black highlighted his concerns with SpaceX’s valuation, stating that the company is “overpriced at a $2T valuation” given its earnings and revenue figures.
Moreover, the news of a potential merger comes at a time when SpaceX is preparing to enter public markets under the Nasdaq’s new “fast entry” rules. Analysts predict this could drive share prices higher while forcing investors to adjust their portfolios.
Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.
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