Tesla's current stock valuation relies heavily on investor expectations of a future merger with SpaceX, according to market analysts. If the two companies fail to combine, Tesla could lose the core logic supporting its forward price-to-earnings ratio of approximately 190 times, significantly above industry averages. This dependency has sparked intense debate on Wall Street about whether merging the two Elon Musk-led giants would create a transformative tech conglomerate or dilute shareholder value.

Why Are SpaceX and Tesla Already So Intertwined?

SpaceX and Tesla have moved far beyond a simple partnership. The two companies share engineering talent, collaborate on chip manufacturing through a project called Terafab, and conduct substantial business with each other. Since 2023, Tesla has sold approximately $890 million worth of vehicles and battery products to SpaceX and its subsidiary, xAI. In 2025 alone, SpaceX purchased $131 million worth of Cybertruck electric pickups from Tesla.

The operational integration deepened significantly in February 2026, when SpaceX acquired Elon Musk's AI startup xAI, bringing the Grok chatbot, data centers, and the X social network into SpaceX's ecosystem. Following this acquisition, Tesla's previous $2 billion investment in xAI was swapped for SpaceX equity, marking the first direct capital link between the two companies, though Tesla's ownership stake remains below 1%.

What Would a Merger Actually Look Like?

Market analysts suggest that a formal merger would create a mega-tech conglomerate spanning space transportation, satellite communications, artificial intelligence, autonomous driving, robotics, and energy systems. SpaceX recently completed the largest initial public offering in history, raising $75 billion and achieving a market capitalization of $1.77 trillion, making it the seventh most valuable company in the United States. The company is also reportedly holding an acquisition option for AI programming startup Cursor in a deal valued at approximately $60 billion, which would further bolster its capabilities in AI software and autonomous systems.

However, with both companies already operating at a trillion-dollar scale, any merger plans would face complex hurdles regarding regulatory approval, corporate governance structures, and shareholder equity.

How to Understand Wall Street's Divided Opinion on the Merger

• Merger Advocates: Wedbush Securities argues that Tesla and SpaceX are highly likely to complete a blockbuster merger by early 2027, with SpaceX's recent IPO serving as a stepping stone to streamline capital structure before the transaction. The firm views the conditions for a merger as gradually maturing, elevating the thesis from speculation into a steadily unfolding roadmap.
• Merger Skeptics: Oppenheimer contends that keeping the two companies independent better aligns with Musk's long-term AI strategy, as separate public listings offer more diversified and flexible financing channels. The firm argues that operating two public companies simultaneously is the most efficient way to bankroll Musk's ambitious AI vision.
• Valuation Risk Concern: Both camps acknowledge that a merger could weigh on SpaceX's valuation, as SpaceX boasts a clearer growth trajectory and a scarcity-driven valuation premium, while Tesla operates in an increasingly competitive electric vehicle industry characterized by high capital intensity.

Oppenheimer noted that Tesla's stationary energy storage business would be the primary near-term beneficiary of a SpaceX listing, as Tesla's energy storage technology could support SpaceX's efforts to accelerate computing power and power infrastructure.

What Happens to Tesla If the Merger Falls Through?

Well-known investor Ross Gerber has raised a critical concern: if Tesla fails to complete its merger with SpaceX, its valuation framework will lose its core support and may face a total collapse of its fundamental value. Gerber believes that the market currently views the Tesla-SpaceX merger as a high-certainty event, and one of the core motivations for shareholders holding Tesla stock is to secure a pathway for future investment in SpaceX.

Gerber emphasized a deeper structural problem: Tesla has committed substantial computing resources, chips, and engineering teams to the development and construction of xAI, yet this entity remains independent of the Tesla ecosystem, meaning its equity and benefits do not belong to Tesla shareholders. Additionally, while Elon Musk has repeatedly stated that Tesla's valuation is anchored to the commercialization of Full Self-Driving (FSD), the intellectual property of FSD's core algorithmic "brain" is not fully controlled by Tesla. If a company does not own the underlying intellectual property of its core product, its long-term growth prospects face significant uncertainty.

Tesla's stock performance this year has lagged behind other members of the "Magnificent Seven," with a cumulative decline of about 9%, yet its forward price-to-earnings ratio remains as high as approximately 190 times, significantly above the industry average. This disconnect underscores how heavily the market is betting on the merger narrative to justify the company's current valuation.

What Does SpaceX's IPO Mean for the Broader Tech Market?

SpaceX's record-breaking IPO has reshaped the competitive landscape in the tech sector. The company raised $75 billion by selling 555.6 million shares at $135 each, with the funds designated for launching over 100,000 communication satellites and building artificial intelligence data centers in orbit. Elon Musk retained control of 82.4% of SpaceX's voting shares following the listing, though he cannot sell his stake for one year.

The underwriting banks earned approximately $500 million in commissions from the offering, and investors are given the opportunity to purchase an additional 83.3 million shares within 30 days after the IPO, which could increase the company's capitalization further. The funds are expected to accelerate the development of heavy Starship rockets, which are still being tested and have not yet become fully reusable, as well as to enable the construction of the Terafab chip manufacturing plant alongside Tesla and Intel in Texas.

Despite accumulating a deficit of $41.3 billion since its founding in 2002, SpaceX remains a leader in commercial launches and satellite technologies, with growing demand for Starlink services. The SpaceX offering is expected to impact the dynamics of the US tech sector and intensify competition in the space services market.