Investor Gary Black, managing director of The Future Fund LLC, has expressed his concerns about a potential merger between Tesla Inc. and SpaceX. According to Black, the merger does not make sense mathematically for Tesla’s shareholders, unless there are significant cost or revenue synergies for the electric vehicle (EV) maker.
The Math Doesn’t Add Up
Black explained that the 35% dilution is too great given the relative price-to-earnings (P/E) differences between the two companies. To match SpaceX’s $800 billion market capitalization at a 400x P/E, Tesla would need to issue 35% new shares. With Tesla’s current market capitalization of $1.5 trillion at a 200x P/E ratio, the combined company’s market cap would be $2.3 trillion.
Lack of Industrial Logic
Black also questioned the industrial logic of a Tesla-SpaceX merger, stating that it escapes him. While the merger might make it easier for Elon Musk to run the companies, allowing Tesla to fund SpaceX’s negative cash flows, it’s not a concern for Tesla’s shareholders. Many existing TSLA institutional shareholders would be uncertain about 25% of profits coming from space travel/communications and might sell their shares.
Not the Only Skeptic
Black is not the only investor questioning the merger. “The Big Short” fame investor Michael Burry has also expressed his doubts, calling Musk a “desperately incentivized futurist.”
Past Predictions
Black highlighted his past predictions about Tesla, which he claims have given him credibility in his current assessment. He noted that Tesla has underperformed the Nasdaq for five years, with a 48% increase compared to the Nasdaq’s 90% increase.
Price Action
TSLA stock surged 3.32% to $430.41 at market close on Friday but slid 0.18% to $429.63 during after-hours trading.
Conclusion
In conclusion, the potential merger between Tesla and SpaceX may not be beneficial for TSLA investors. With significant dilution and a lack of industrial logic, it’s crucial for investors to carefully consider the implications of such a merger. As the situation unfolds, it’s essential to stay informed and adapt to the changing landscape of the EV and space industries.