Key Points
Ark Invest projects that robotaxi will be Tesla's main value driver by 2031.
Merging Tesla and SpaceX may not benefit Tesla shareholders.
Tesla's robotaxi success alone could drive significant stock appreciation.
Cathie Wood's Ark Invest clearly believes that Tesla's (NASDAQ: TSLA) robotaxi business will be a huge success. In fact, its base case for Tesla stock in 2031 calls for robotaxi to account for 81% of its expected $4,400 value. Moreover, Ark Invest argues that Tesla's cash flows from its robotaxi network could be used to support Space Exploration Technologies' (NASDAQ: SPCX) capital expenditures in the event of a merger. Is it time to buy Tesla stock?
Robotaxi cash flow and SpaceX spending
If you believe that robotaxi will be successful and, more importantly, that its dedicated robotaxi, Cybercab, will have a long-term competitive cost advantage, then the answer is no. The secure stream of recurring revenue from robotaxi is better left with Tesla rather than funding SpaceX's growth ambitions. In other words, if robotaxi is successful, then the stock will appreciate significantly anyway.
Missed Nvidia in 2009? This Rare Signal Is Flashing Again. In 2009, a "Double Down" signal flashed for a little-known chipmaker called Nvidia. For the first time in years, that same "Total Conviction" signal is flashing for a company 1/100th the size of Nvidia. Continue »
Furthermore, there are five reasons why Tesla shouldn't be part of SpaceX.
Image source: Tesla.
Why a SpaceX and Tesla merger might not be great for Tesla shareholders
First, SpaceX is a fine company, but you have to be fully on board with its growth prospects and valuation to, de facto, turn yourself into an investor in its growth by giving up your share of cash flow from robotaxi as a Tesla shareholder in place of funding SpaceX capital spending.
Second, given the uncertainty around the robotaxi rollout, if you are confident in its success and it occurs, the stock will appreciate, and Tesla shareholders can negotiate a better price for any takeover.
Third, as previously discussed regarding a merger between SpaceX and Tesla, the reality is that these two companies have significantly different risk and capital profiles. Yes, Tesla's investments in robotaxi and Optimus robots require significant up-front capital, but Tesla has the resources to fund them and is set to ramp up its robotaxi rollout in 2027. In other words, it's about to start migrating toward becoming a highly cash-generative company with a stream of reliable income. This contrasts with SpaceX's need to fund artificial intelligence infrastructure and launch services, while bearing the ongoing risk of a launch failure. Simply put, these companies have significantly different risk and capital profiles.
Fourth, while there's undoubtedly a benefit in merging SpaceX's AI infrastructure with Tesla's physical AI (electric vehicles, robotaxi, Optimus), the reality is that the two companies already cooperate and have a joint venture (JV), Terafab, in a semiconductor fabrication facility. A merger would reduce complexity around Terafab's financial ownership and funding, but is unlikely to improve execution. The former can be settled under a JV agreement, but the execution challenges will remain either way.
Finally, the creation of a mega conglomerate bucks the trend of breakups in the industrial sector, where, in recent years, the emphasis has been on separating to allow management to focus solely on individual businesses and to give investors a clean investment proposition. The days of the conglomerate premium appear to be over, and there's more likely to be a conglomerate discount.
What's next for Tesla stock?
If robotaxi works, then Tesla stock is likely to be rewarded, and investors need to be as patient as they have already been in waiting for management to deliver. The stock doesn't need SpaceX to do that, and if SpaceX wants to buy Tesla, it makes more sense for Tesla's shareholders to wait until robotaxi delivers value for them. The "buy Tesla" thesis does not need SpaceX.
Lee Samaha has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Tesla. The Motley Fool recommends Space Exploration Technologies. The Motley Fool has a disclosure policy.