JP Morgan Calls Elon Musk’s Potential SpaceX-Tesla Merger “Strongly Consensus”
Now that’s Elon Musk’s rocket and satellite company Space Exploration Technologies (NASDAQ: SPCX) is publicly traded, Wall Street has begun hunting for the next best thing: stocks that can ride its coattails. The most eye-catching call came from JP Morgan, whose analysts described a possible combination of SpaceX and Tesla (NASDAQ: TSLA) as “good fit on paper.” That one sentence revived a long-term dream among investors, and it is worth understanding what the analyst company really means before treating any of these words as a back door to SpaceX.
Why JP Morgan sees sense in a Tesla-SpaceX tie-up
JP MorganMusk’s argument is that Musk’s companies already share engineering talent, a passion for artificial intelligence, and a common leader, so combining them would allow him to create a unified vision for cars, robotics, energy, and space. Analysts also noted that SpaceX’s blockbuster first public offering gives Musk valuable leverage to strike a deal, and that his growing voting control of Tesla puts him in a better position to push one.
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JP Morgan was cautious, however, and so was I. It flagged real hurdles: getting regulatory approval in many countries, especially China, where Tesla builds cars; the awkward gap between Musk’s close control of SpaceX and his minority stake in Tesla; and the possibility that any deal would look like SpaceX swallowing Tesla instead of a merger of equals.
“Consolidation on paper” is a long way of “likely to happen.”
Another SpaceX-by-association is in play
Tesla isn’t the only name holding a halo. Deutsche Bank began the spread of EchoStar (NASDAQ: ECHO) at a buy rate, positioning it as a cheaper way to own SpaceX. EchoStar owns about 11 billion shares of SpaceX that it got for giving away the wireless spectrum, so the bank says it is successfully buying SpaceX at a discount and dumping some of EchoStar’s assets. The catch is worse: EchoStar’s pay-TV subsidiary recently filed for bankruptcy, and the stock has plummeted.
And then there is Charter Communications (NASDAQ: CHTR), which, according to Bloomberg, is in talks with SpaceX about a consumer phone service that will carry some traffic to Charter’s network. It’s a real strategy that fits, but it’s talk for now.
