Romit Shah, an analyst with Nomura Instinet, asserted in a video on Bloomberg today that he in convinced that Tesla and SpaceX will merge.  His main reasoning is that Tesla and SpaceX have a lot of commonality, especially interest in AI in manufacturing.

I have mixed feelings and thoughts about SpaceX and Tesla merging.  I do think that ultimately it may happen, perhaps by 2030, when both companies are mature and there could be growing synergies attained by combining the two companies.  Perhaps when SpaceX is able to grow their BFR Earth to Earth plans (transporting people anywhere on earth in less than an hour) then there could be added advantage in bringing Tesla and SpaceX together as the ultimate transportation company for earth and beyond.  However, I do think it will take quite some years before SpaceX even has the ability to test their BFR earth to earth flights.

Another reason to merge Tesla and SpaceX is simply because this would allow Elon Musk to focus his energy all under one company and would allow him to potentially launch even bigger ventures and new investments under the umbrella company.  Currently, Elon has launched separate companies for the Boring Company and Neuralink, but over time I think the increased overhead incurred by having separate companies could be taxing for Elon in terms of his time and commitment.  If Tesla (and SpaceX) can be profitable enough on a sustained consistent basis, that could provide Elon with enough capital to try new ideas and ventures within his umbrella holding company and reduce fragmentation of having to maintain various separate companies.  One small example is if SpaceX goes public, Elon would then have to be available for two sets of quarterly conference calls and shareholder meetings, etc.  There are many more examples of how having two separate public companies could be more of a headache for Elon.  Currently, with SpaceX being private he’s able to shield SpaceX from much of the scrutiny and volatility of the public markets.  However, I’m not sure how long SpaceX can remain and will remain private.  Elon has stated his desire to keep SpaceX private, but also I’ve heard from SpaceX’s President her desire to take the company public.

Tesla will just be entering their groove later this year as they ramp Model 3 production, and they’ve guided for sustained quarterly profit to start by the end of this year.  For SpaceX, they’ve been a tight run operation with revenue largely covering launch expenses.  But they have large capital needs for their BFR rocket and their internet satellite constellation.  SpaceX won’t have sustained quarterly profits until they can get their internet satellite constellation up and running, and if they can do so they have potential to be lucratively profitable, or should I say ludicrously profitable.  As long as both Tesla and SpaceX are very profitable, I would imagine a merger would make more sense for both companies as each company would be past the riskiest phases in their businesses.

Even if Tesla and SpaceX do merge, I imagine the new company would be an umbrella holding company of sorts.  Tesla and SpaceX would run relatively independent of each other with separate structures for most everything.  However, public reporting would be simplified as one company and it would make things more manageable for Elon (vs running two public companies).  The other advantage would be the possibility of raising large amounts of capital based on the market cap of the new holding company to go into large arenas of business that could create massive shareholder value.

In conclusion, I think it’s too earlier to be talking about a Tesla and SpaceX merger as it won’t make sense until much later when both companies are running sustainable quarterly profits.

Yesterday SpaceX made history again with a successful launch of the Falcon Heavy, which is basically three Falcon 9 rockets strapped together.mmIf you haven’t seen the launch, it’s a must-watch and I’ve included it at the end of this post.  Here’s what SpaceX had to say about the launch and what it means:

[Falcon Heavy is] the most powerful operational rocket in the world by a factor of two. With the ability to lift into orbit nearly 64 metric tons (141,000 lb)—a mass greater than a 737 jetliner loaded with passengers, crew, luggage and fuel–Falcon Heavy can lift more than twice the payload of the next closest operational vehicle, the Delta IV Heavy, at one-third the cost. Falcon Heavy draws upon the proven heritage and reliability of Falcon 9. Its first stage is composed of three Falcon 9 nine-engine cores whose 27 Merlin engines together generate more than 5 million pounds of thrust at liftoff, equal to approximately eighteen 747 aircraft. Only the Saturn V moon rocket, last flown in 1973, delivered more payload to orbit. Falcon Heavy was designed from the outset to carry humans into space and restores the possibility of flying missions with crew to the Moon or Mars.

Roughly two years ago SpaceX made history with the first landing of a orbital’s first stage on land.  This was the key piece to SpaceX’s ultimate mission to make humans a multi-planetary species.  What yesterday’s successful launch of Falcon Heavy showed was that SpaceX is on an inevitable path to send people to Mars.  Now more than ever it’s clear that SpaceX is on a roll and that momentum will lead to amazing space ventures that many thought was only for the imagination.

What makes SpaceX special is the combination of a ridiculously ambitious goal (making humans multi-planetary) and the practical means and methods to achieve that goal.  SpaceX believes that if they harness the intelligence of the brightest engineers and commit to ruthless iteration and constant improvement, then the end result will be achieving what many people think is impossible.

In the same way, Tesla shares the SpaceX ethos.  Tesla has set a ridiculously ambitious goal of transitioning the world to sustainable transport and energy, and they’ve committed to making that happen by bringing together the best engineers they can find and working ruthless toward constant iteration and improvement.

Sometimes this constant iteration and improvement isn’t linear because there are step changes with new projects.  For example, while engineers are constantly working and iterating improvements, SpaceX experienced step changes in technology with Falcon 1, Falcon 9, ability to land and reuse boosters, and now with Falcon Heavy.

In a similar way, Tesla has experienced massive step changes with the original Roadster, the Model S, and now the Model 3.

With Tesla it appears that every 5 years or so they are able to achieve a true step change in technology and product.  And the Model 3 is so far Tesla’s greatest achievement, yet it is only the beginning.  In another 5 years, Tesla is bound to have made massive progress in manufacturing, battery technology, design, and other fields; and all of that put together will allow them to make another product that they just weren’t able to do right now.

I think in 5 years or so, Tesla will be able to release a generation 4 vehicle that addresses an even larger market than the Model 3.  The Gen4 vehicle will be cheaper than the Model S and will target the economy class of vehicles.  It simply will be a vehicle that is more affordable than the Model 3 and is the best economy car, ever.

Later today Tesla will announce their Q4 earnings.  And while Tesla will give important updates as to how the Model 3 production ramp is going, how much cash balance they have, and their goals for this year, in many ways I think what’s more important is that Tesla has already made a stellar car in the Model 3 and they are trekking toward their next goals and are not staying still.  Sure, Tesla has their work cut out for them in terms of ramping Model 3 production.  But in my opinion this is a solved problem.  In other words, ramping production has been done by every major auto manufacturer on the planet, and Tesla will be able to do it as well.  It might take a bit longer than expected, but they’ll get there.

But for some reason many investors and analysts are so short-term focused, so all eyes will be on what Tesla will be doing over the next quarter or two.

The bigger picture is Tesla is marching on toward their ridiculously ambitious goals.  The bulk of their engineering team has long moved on to other projects like the Model Y, Tesla Semi, and new Roadster.  And after those projects, they will move on to the Tesla pickup truck and to other mind-blowing vehicles and projects.

What the Falcon Heavy launched yesterday showed us is a glimpse into the power of the ethos behind SpaceX, and also Tesla.  And it’s no coincidence they’re run by the same person, Elon.