Tesla's stock could rise 20% thanks to the potential for a SpaceX merger, analyst says

By William Gavin

Some on Wall Street see an increasing likelihood that Elon Musk's two biggest companies will combine

Elon Musk would likely control a combined SpaceX and Tesla if the two companies merged.

Wall Street is increasingly entertaining the possibility of a merger between Elon Musk's biggest companies, even if it wouldn't necessarily be easy to pull off.

Tesla (TSLA) and SpaceX (SPCX) have been working together for years, although their relationship has deepened recently. In March, Musk announced that Tesla would work with SpaceX on a project aimed at developing a factory capable of making one terawatt per year of compute hardware.

That appeared to "foreshadow" a potential SpaceX acquisition of Tesla, William Blair's Louie DiPalma said in a note to clients on Tuesday. Such speculation has been rampant for months among investors. Internally, Musk has also discussed folding his companies together, CNBC reported in May.

Publicly, Musk has said his companies were "trending towards convergence." SpaceX has said it plans to explore other areas of "strategic collaboration" with Tesla, which owns a slice of SpaceX stock, according to SpaceX's prospectus.

"There's no question that there's synergies between Tesla and SpaceX and our futures," SpaceX Chief Operating Officer Gwynne Shotwell told CNBC last month.

Representatives for Tesla and SpaceX did not immediately return a request for comment.

The primary reason SpaceX would want to merge with Tesla is "operational collaboration," according to RBC analyst Tom Narayan, who raised his price target on Tesla to $500 from $475 after considering the impact of a potential combination. That new target implies a 22% bump from current trading levels.

Narayan pointed to the Terafab chip project, as well as SpaceX's reliance on Tesla's Megapack energy-storage products and the companies' work together on artificial-intelligence training - all justification for closer ties. Most likely, he said, SpaceX would acquire Tesla through an all-stock deal, valuing Tesla "potentially" at a 20% to 30% premium.

Tesla's "board may favor a premium to justify losing voting control, especially since Musk's voting control of the combined entity could exceed 50%," Narayan added. He noted that the companies share just two officers: Musk and Ira Ehrenpreis, a longtime Tesla board member who joined SpaceX in February.

Separately, RBC initiated coverage of SpaceX's stock on Tuesday with a $225 price target, implying upside of 48% relative to current trading levels.

Now read: SpaceX wins wild praise, with one analyst going so far as to predict a 400% stock surge

Tesla shares fell 4% on Tuesday, while SpaceX's stock sank 6.8%. SpaceX joined the ranks of the Nasdaq-100 before the market opened on Tuesday.

J.P. Morgan analysts led by Doug Anmuth said in a Tuesday client note that there are three alternatives to an all-stock acquisition of Tesla, although they agreed that was the most likely outcome.

Folding SpaceX and Tesla into a new company, Anmuth said, could offer a cleaner "merger of equals," while a phased or partial combination could de-risk regulatory and governance hurdles. SpaceX could also offer a cash-and-stock deal, which could deliver a sharper premium for Tesla investors but would likely strain SpaceX's already pressured free cash flow, according to J.P. Morgan.

Some analysts have forecast a merger occurring as soon as 2027. Baird's Ben Kallo said it could take place within 12 to 18 months, according to a June 23 note to clients.

Anmuth said the possibility of such a deal will rise "materially" over the next one to two years, though he thinks a merger is not imminent.

"We would expect execution to lag the most bullish timelines given governance asymmetry, the valuation gap, & regulatory complexity," he wrote, calling a merger "challenging to pull off."

SpaceX is a major defense contractor, which means its relationships with other companies will draw intense scrutiny. Tesla's close business ties to China could trigger an antitrust or national security review, Anmuth said.

Another potential concern is Tesla's strained business fundamentals, Anmuth noted, pointing to the company's performance in 2025. It is set to report second-quarter earnings on July 22, and that will give investors a full picture of the first half of 2026.

Tesla's first-quarter earnings narrowly beat Wall Street's expectations, and while it's still unclear what the second quarter will look like, the company's latest sales report provides a clue. Tesla last week said it sold many more electric vehicles than expected in the June quarter, although it slightly missed projections for its energy business.

"Tesla has not surprised to the upside to this degree in a while, a healthy sign the auto business is here to stay," William Blair's Jed Dorsheimer said in a note last week. Regarding the energy business, he said that demand and energy-storage deployments will likely accelerate in the second half of 2026.

-William Gavin

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07-07-26 1834ET