• SpaceX aftermarket volatility would put Musk’s stake in combined business at risk
• Pre-IPO indications could be used to justify merger to Tesla shareholders

SpaceX hasn’t even begun official IPO marketing and yet talk is already turning to Elon Musk engineering a post-listing merger between the space tech giant and Tesla to combine the mogul’s major business interests into a single entity.

The logic makes sense. Both SpaceX and Tesla are central to Musk’s AI ambitions – the former providing galactic compute power, and the latter robotic innovation to create humanoid machines that seemed imaginable only as science fiction a few years back, as it pivots away from the ever-more competitive electric vehicle space.

If this is Musk’s long-term plan, what if the sequence – listing SpaceX, then merging with Tesla – puts the cart before the horse? Exposing SpaceX to IPO aftermarket risk might frustrate Musk’s efforts to secure the largest possible combined shareholding.

It would surely be cleaner for Musk to use SpaceX IPO pre-marketing indications from public institutions to validate a USD 1.75tn valuation – and then go to Tesla shareholders with the prospect of a merger of equals between the two businesses.

Musk has been open about his desire to assert more control over Tesla, to be secure in pushing the business towards AI and robotics. Merging directly with SpaceX would deliver that while sidestepping a giant capital markets hurdle.

Of course, an IPO is not only a hurdle – it opens the door to fresh capital, alongside acting as an unrivaled price discovery mechanism. At the mooted USD 1.75tn-USD 2tn valuation, a SpaceX IPO will also gather some USD 75bn in proceeds.

This is all well and good if SpaceX prices at that valuation and retains it, or even far exceeds it in trading. But public markets are far from predictable beasts.

Amid the excitement of SpaceX targeting the largest IPO of all time, some of the astronomic numbers surrounding the deal are making investors uncomfortable.

At the mooted valuation, SpaceX would list at over 100x trailing revenue – yes that’s revenue not earnings. The entire Mag7, by comparison, trades at 87x.

As covered by this service before, the math around SpaceX’s IPO is almost beyond comprehension if assessed via traditional IPO valuation metrics.

But how can public markets investors really put a value on Musk’s interplanetary and AI ambitions given how theoretical and distant they may seem?

This is an IPO, and stock, which will require a deal of faith. Should investors lose that faith because of an earnings miss, or any other external factors, then the merger math begins to look difficult for Musk.

Musk holds around 42% of SpaceX’s equity and 79% of its voting rights through a dual-class share structure. He holds a 12.8% stake in Tesla.

Let’s assume a merger of the two at a market cap of USD 1.2tn for Tesla, its value at close on 21 April, and a USD 1.75bn valuation for SpaceX. Given the respective valuations of the two businesses, Musk would own just over 30% of the business – above the 25% voting threshold which Musk evoked as a target for his Tesla holding back in 2024.

Were SpaceX to fall dramatically in equity markets in the same way as other supposedly era-defining, futurist stocks such as electric vehicle manufacturer Rivian (down nearly 80% since 2021) or plant-based food player Beyond Meat (down 95% since 2019) that failed to live up to early hype post-IPO, then Tesla becomes the senior partner in the merger.

Were SpaceX to fall in aftermarket trading to around 35.4x 2025 sales before a merger with Tesla, the same as Nvidia – the most expensive of the Mag7 – its equity value would fall to USD 566bn.

A merger of the two at this level, assuming a USD 1.2tn market cap for Tesla, reduces Musk’s economic holding to around 22%, below the psychological 25% threshold.

Why take the risk of such a dilution?

If he can secure enough pre-IPO indications of interest to stack up a USD 1.75tn valuation for SpaceX, Musk would then be able to take that to Tesla shareholders – dangling the the prospect of a merger of equals between the two businesses, which could prove an enticing prospect given the gap between the two valuations.

With such control over SpaceX’s voting rights, the private company’s shareholders might grumble at such a prospect but couldn’t do anything to stop it.

Tesla shareholders would be getting SpaceX shares at a 31% discount to that IPO value. Musk would theoretically gain over 27% of the combined entity given his holdings of the two and giving him a much stronger hold over Tesla’s destiny.

The new combined entity would then be a USD 2.4tn public company. If Musk believed further equity capital were required, a 3% equity raise would provide the same USD 75bn of proceeds currently eyed via the SpaceX IPO.

This columnist has not heard of this scenario being discussed anywhere and, consequently, should be treated as little more than a thought experiment. But given the aftermarket risk around SpaceX’s IPO and Musk’s penchant for audacious, unorthodox capital markets gambits, it’s a scenario that could conceivably be running through his mind.

SpaceX and Tesla did not respond to requests for comment.