SpaceX's stock has crashed to an all-time low of $118, making it a lucrative target for short sellers who have already profited $8.7 billion betting against Elon Musk's rocket company. The dramatic decline has intensified speculation about whether Musk will use his upcoming investor call to announce a merger with Tesla, potentially creating a $3 trillion technology behemoth.

Why Are Short Sellers Betting So Heavily Against SpaceX?

Short sellers are investors making bets that a company's stock price will fall. When they're right, they profit from the decline. According to financial software company S3 Partners, approximately 206 million SpaceX shares are currently being shorted, representing just under one-third of all publicly tradable shares. This represents a dramatic increase from 185 million shares just one week earlier and only 40 million shares one month ago.

The surge in short-selling activity reflects investor skepticism about SpaceX's business fundamentals. Despite a market capitalization exceeding $1.6 trillion, the company lost almost $5 billion last year. Additionally, SpaceX's AI division, which was folded into the company earlier this year and renamed SpaceXAI, lost $6.4 billion.

"We continue to see short sellers adding exposure ahead of several key upcoming catalysts, including the company's first earnings report as a public company and subsequent lock-up expirations," said Matthew Unterman.

Matthew Unterman, Head of Research at S3 Partners

Could Musk Announce a Tesla Merger on Wednesday's Call?

Tesla will report earnings after the bell Wednesday, followed by Musk's investor call. This could provide clarity on whether he plans to merge SpaceX and Tesla into a single company. Wall Street analysts see strategic logic in such a combination. The combined entity would be valued at approximately $3 trillion, making it comparable to Microsoft and one of the largest companies in the world.

A merger would offer several potential advantages for both companies. Streamlining their separate artificial intelligence units could improve efficiency and give the combined entity a competitive edge in the AI race. The deal would also give Musk unprecedented control over Tesla; he currently owns about 20 percent of Tesla's voting shares but more than 80 percent of SpaceX's voting shares.

Dozens of investor questions submitted for Wednesday's conference call specifically ask about a possible merger between Musk's two major companies. This will be the first time Musk has spoken to investors since SpaceX's record-setting initial public offering in June.

What Are the Strategic Reasons for a Potential Merger?

Both SpaceX and Tesla share a critical characteristic: their high valuations are based primarily on artificial intelligence efforts rather than their core businesses of launching rockets and selling electric vehicles. The two companies already formed a joint venture in March called Terafab, a factory in Austin designed to fabricate microchips.

• Unified AI Strategy: Combining the AI units of both companies could eliminate redundancy and create a more powerful artificial intelligence division to compete with rivals like OpenAI and Google.
• Capital Raising Efficiency: A $3 trillion combined entity would have easier access to capital markets and greater financial flexibility for ambitious projects like space-based data centers and lunar settlements.
• Engineering Synergies: SpaceX's rocket engineering expertise and Tesla's manufacturing capabilities could create new opportunities in autonomous systems, robotics, and space infrastructure.

"We see the possibility of a SpaceX-Tesla combination as strategically coherent on paper, allowing CEO Musk to unify vision, mission, and engineering leadership across both platforms," said Rajat Gupta.

Rajat Gupta, Analyst at JPMorgan

Some Wall Street analysts believe a deal is likely within the next year. Tech analyst Dan Ives stated that he sees over an 80 percent chance that Tesla and SpaceX will combine in 2027, calling it the logical move from a data engineering perspective.

What Obstacles Could Block a Merger?

Despite the strategic appeal, significant regulatory hurdles could prevent a merger. China poses a particular challenge, as Tesla operates a major factory there and derives a significant portion of its sales and profits from the Chinese market. SpaceX's deep ties to the U.S. government would likely trigger scrutiny from Chinese regulators concerned about national security.

Additionally, both companies' valuations are heavily dependent on Musk's personal reputation and vision. Combining $2 trillion in value that is directly tied to Musk's credibility could concentrate risk in a way that diminishes the premium investors currently assign to each company separately.

How to Monitor SpaceX's Financial Health and Strategic Direction

• Track Earnings Reports: SpaceX will release its first quarterly earnings report on August 4, providing the first detailed look at the company's financial performance as a public company and revealing whether losses are narrowing.
• Watch Starship Test Flights: The company has scheduled another test of its mammoth Starship rocket for Thursday, with results likely to trigger substantial stock movement regardless of the outcome.
• Follow Investor Calls: Musk's statements during Tesla's earnings call and subsequent investor meetings will offer clues about merger plans and the company's long-term strategy for space-based data centers and lunar settlement.

Musk has responded to the short-selling pressure with characteristic bluster. "The survival probability of firms who maintain a significant short position in SpaceX over time is very low," he tweeted. He also reiterated his belief that "SpaceX will be worth more than Earth if we achieve our goals," though he provided no evidence to support this extremely ambitious claim.

Before SpaceX can justify its trillion-dollar valuation, the company must prove it can execute on Musk's lofty and untested goals. The August 4 earnings report and Thursday's Starship test will be critical moments for investors to assess whether the company's current stock price reflects realistic business fundamentals or speculative optimism about Musk's vision.