How Musk's Tesla And SpaceX Could Combine

Elon Musk is spread pretty thin these days. The CEO of Tesla Inc TSLA, SpaceX and The Boring Company is pursuing multiple projects through each firm, but one market analyst is forecasting a consolidation.

The Rating

Morgan Stanley analyst Adam Jonas reiterated an Equal-Weight rating on Tesla with a $379 price target.

The Thesis

By Jonas’ assessment, Tesla could profit from SpaceX’s superior competitive moat and economic model while economizing through shared technology and artificial intelligence. (See Jonas' track record here.) 

“There's cross-fertilization of knowledge from the rocket and spacecraft history to auto back and forth [that] I think has really been quite valuable,” Musk said on Tesla’s last earnings call. “It's something that's been very valuable for me in thinking about how do we make mass optimized vehicles, because in space, mass optimization is extremely important. On the space side, it's helpful because what really goes into high-volume manufacturing of something that has to be extremely reliable?”

Musk’s firms have already seen the fruit of teamwork. Tesla recently consulted SpaceX on aluminum casting to save eight hours of production per vehicle, Jonathan McNeill, Tesla’s president of global sales and services, said on the call.

Jonas anticipates further expansion to the relationship, particularly as Musk shifts focus toward his private venture and Tesla loses appeal among potential buyers.

“We see the future of Tesla and SpaceX as potentially further intertwined, driven by technological, strategic and financial factors,” Jonas said, predicting a strategic partnership, co-investment or technology transfer.

Price Action

At the time of publication, shares were trading down marginally at $305.20.

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Photo courtesy of SpaceX.