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Gary Black Warns Tesla Investors Against Potential SpaceX Merger Hype

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TSLA$357.02 −1.50%SPCX$145.85 −1.86%

Future Fund Managing Partner Gary Black has cautioned investors of Tesla Inc. (NASDAQ:TSLA) that speculation surrounding a prospective merger with Space Exploration Technologies Corp. (NASDAQ:SPCX) could hurt shareholder value. In an all-stock deal, Black noted that arbitrage traders would eliminate price premiums, causing the unified business to trade at Tesla's lower valuation multiple. He previously estimated that such a combination could reduce Tesla's overall valuation by 20% to 25% due to share dilution and a conglomerate discount.

While proponents see potential synergies in artificial intelligence and vehicle manufacturing, Black emphasized that product crossovers like the SpaceX-powered Roadster offer minimal direct financial upside. Assuming 3,000 annual deliveries with $100,000 profit per car, he projected the vehicle will add $0.06 per share to Tesla's 2029 earnings, representing just 1.1% of the $5.40 consensus estimate. Nevertheless, he acknowledged that the vehicle could generate a significant brand halo effect despite ongoing pressures from rising autonomous driving competition and high earnings multiples.

Investors will be watching for potential announcements ahead of Tesla's December shareholder meeting, as market observers debate whether executive leadership plans a formal deal. Shares of Tesla Inc. were down 0.61% at 360.20 USD following the comments, while Space Exploration Technologies Corp. fell 2.07% to 145.60 USD.

Key points

  • Gary Black warned that an all-stock merger between Tesla Inc. and Space Exploration Technologies Corp. could lower valuation multiples by 20% to 25%.
  • Arbitrage traders would likely eliminate shareholder premiums during a stock-for-stock combination.
  • The SpaceX-powered Roadster is estimated to add $0.06 per share to Tesla's 2029 earnings, or 1.1% of consensus forecasts.
  • Barclays analysts suggested a potential deal announcement could occur before Tesla's December shareholder meeting.

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Questions and answers

Why does Gary Black caution against a Tesla and SpaceX merger?

Black warns that an all-stock deal could dilute shareholders, create a conglomerate discount, and reduce Tesla's valuation by 20% to 25% as arbitrageurs erode price premiums.

How much earnings will the SpaceX-powered Tesla Roadster add?

Black estimates the vehicle will add $0.06 per share to Tesla's 2029 earnings based on 3,000 annual deliveries, contributing about 1.1% of the $5.40 consensus adjusted EPS estimate.

When could a Tesla and SpaceX merger be announced?

Barclays analyst Dan Levy suggested a merger announcement could occur before Tesla's December shareholder meeting to integrate artificial intelligence and manufacturing capabilities.