SpaceX Would Pay $600 for Every $1 of Tesla Earnings

SpaceX shareholders would hand over stock worth $1.98 trillion to buy $3.28 billion in Tesla profits — $600 for every dollar of earnings. That's the arithmetic lurking behind Elon Musk's October 20 announcement that SpaceX and Tesla have each named special committees of independent directors to explore a merger, a step Wall Street read as making the tie-up all but inevitable.

Musk, who controls both companies, can't sit on those committees as a "conflicted party." But investors cheered anyway. Tesla rose 3.4% the day after his statement; SpaceX jumped 7.8%, adding $155 billion in market cap. That's a rare pattern. Acquirers paying a humongous PE usually see their stock fall — this time both sides rallied.

The companies' entanglement makes the logic feel natural. SpaceX buys Tesla Megapack batteries and Cybertrucks. Tesla invested $2 billion in xAI, which SpaceX bought in February. They share the Terafab chip project. And Musk gets his long-sought Berkshire Hathaway of AI-driven tech. But run the numbers, and the deal demands never-before-seen heroics.

What does 'accretive' actually mean here?

Technically, adding Tesla's earnings would lift SpaceX's EPS. The catch: SpaceX lost $1.5 billion over the past four quarters, while Tesla booked $3.28 billion in GAAP net profit. So the merged company would be slightly profitable — EPS moving from a minuscule negative to a tiny positive.

The price is what kills the argument. Tesla's market cap sits at $1.52 trillion. Rajat Gupta of JPMorgan notes tech acquisitions typically carry a 30% to 35% premium; assume 30%, and SpaceX pays $1.98 trillion. Against SpaceX's $2.14 trillion valuation, that's almost a merger of equals. SpaceX would issue the equivalent of 92% of its current shares, pushing its count from 13.1 billion to 25 billion.

In effect, SpaceX would surrender nearly half of its future earnings to Tesla's selling shareholders. And timing matters. In Q3, SpaceX swung to $4.4 billion in GAAP net profit after three quarters of deficits, while Tesla's profits have fallen from $15 billion in 2023 to $5 billion in 2024 to a run rate two-thirds below the figure of two years ago. Do the deal a year or two from now and it turns outright dilutive for the Starlink provider.

How steep is the hill after the merger?

Steep before it, steeper after. In May, David Trainer of New Constructs calculated that at $2.14 trillion, SpaceX needs roughly $300 billion in profits on about $1.6 trillion of revenue by 2035 to deliver a competitive return. That's almost a quarter more profit than Alphabet earns today, on over three times its revenue.

A merger doubles the climb. The combined company would launch with a $4.12 trillion market cap — edging Alphabet ($4.0 trillion) and Microsoft ($3.9 trillion), ranking behind only Nvidia ($5.3 trillion) and Apple ($5.0 trillion). By Fortune's estimate, it would need $550 billion in profits and around $3 trillion in revenue by 2035. That $550 billion is more than twice what Alphabet amasses today.

Who funds the AI spending spree?

Neither company, on current form. SpaceX pocketed $13.1 billion in cash from operations in the first nine months of this year and spent $48.1 billion in capex — $40 billion of it on AI, chiefly terrestrial data campuses and planned AI centers in space — for negative free cash flow of $15 billion. CFO Bret Johnson disclosed plans for another $35 billion to $50 billion of investment in Q4 alone. SpaceX is seeking $40 billion in extra debt, and even Wall Street fans question how it raises the sums.

Tesla can't ride to the rescue. Musk has repurposed it as a robotics and self-driving franchise, and it posted negative free cash flow of $1.1 billion in Q3. He plans $25 billion in total capex this year, leaving at least $9 billion for Q4 — more than double Tesla's recent quarterly operating cash. Extrapolate, and the two combined could spend close to $50 billion on capex in Q4, far beyond what their businesses generate.

So who wins?

Tesla shareholders, unambiguously. Tesla trades at a PE of 633 — one-sixth of a cent in earnings per dollar of stock — and its repeatable profits are lower still once you strip out regulatory credits (a category Musk says will disappear) and unrealized gains on its SpaceX stake. As Steve Eisman put it, the prospect of a full-price buyout from SpaceX is what's holding Tesla shares up. Trainer is blunter: "A SpaceX deal is the only way to bail out Tesla shareholders."

What does this change for SpaceX holders? They'd give up almost half their company for shrinking profits and big promises — and inherit a cash furnace twice the size of the one they already own.