Some combinations seem to be fated. There’s Ross and Rachel in “Friends,” Jim and Pam in “The Office,” and Elon Musk has SpaceX and Tesla.
However, the transaction between these two giants under Musk may ultimately turn out to be more like a Frankenstein's monster than a Hollywood-style love story. Investors might also find it difficult to understand and value such a deal.
The collaboration between SpaceX and Tesla is not a foregone conclusion, but both parties are officially considering this option. This also raises a question: what exactly can such a merger bring?
After merging the two companies, Musk's two jobs have become one. Their plans, which overlap slightly in the field of artificial intelligence, could lead to significant improvements in areas such as computing power and talent. Joe Ciolli has previously analyzed the pros and cons of this transaction for both SpaceX and Tesla's investors.
However, these two companies have an incredibly large number of businesses under their umbrella. The following are just some of the businesses that SpaceX and Tesla are currently pursuing or have long-term bets on:
- Space launch services (Falcon 9, Dragon spacecraft, Starship)
- Internet Services ( Starlink Broadband )
- Mobile Communication Operators ( Starlink Mobile )
- Government Satellite System ( Starshield )
- Autonomous vehicles ( Robotaxi )
- Humanoid Robot ( Optimus )
- Energy storage ( Powerwall , Megapack )
- Cutting-edge AI model ( Grok )
- Payment Apps ( X Money )
- AI Infrastructure ( Colossus )
- AI Programming Tools ( Cursor )
Don't forget Musk's most ambitious goal: colonizing Mars.
Such a group with an extremely diverse range of businesses can make valuation a very tricky task.
Let's start with the simplest question: How would you describe an SpaceX-Tesla entity?
Is it an aerospace company? AI Company? A robotics company? If it claims to be “a bit of everything”, investors might not be convinced to buy in.
When a company ventures into multiple industries, the market does not always grant it trust. There is a specific term for this phenomenon: conglomerate discount.
It refers to a situation where the valuation of a company's stock price is lower than the sum of the valuations of its individual businesses. Some investors are concerned that the company may be too complex to manage or that its operating costs may be too high. Others worry that the consolidated financial situation will make it difficult to discern the true health of the company, or that stronger businesses may subsidize weaker ones.
A widely cited 1995 paper found that in sample diversified companies from 1986 to 1991, this discount ranged between 13% and 15%.
Some scholars and economists also believe that the discount for mixed enterprises is a thing of the past. A McKinsey report from 2024 states that such discounts do not necessarily occur automatically. On the contrary, highly diversified companies tend to perform poorly or lack financial transparency, which makes it more difficult to assess their true value.
In any case, such companies need investors with a wide range of tastes, or at least people with a strong appetite for investment.
Imagine this: you see the potential in Starlink, but you're not that enthusiastic about humanoid robots. Expensive robotics projects might consume the budget you had planned to allocate to Starlink; conversely, the funds generated by Starlink could also be used to subsidize losses from a less performing business.
This is also why large and decentralized companies are often less favored than pure business entities.
After all, a transaction is often about selling a vision to investors. And in this regard, perhaps no one is better than Elon Musk.
Now, all he needs to prove is that SpaceX and Tesla are meant to be together.
