Musk's ultimate play? Baird: Tesla and SpaceX merger to materialize within a year and a half, probability over 80%

The anticipated integration of Musk's two major assets is becoming a key narrative supporting Tesla's stock price.

Last week, SpaceX completed the largest IPO in history, becoming Musk's highest-valued asset and putting pressure on Tesla shareholders. However, this IPO has also sparked another bet on Wall Street—investors expect Musk will eventually push for a merger between Tesla and SpaceX, creating a tech giant comparable to Nvidia, Google, and Apple.

This expectation has already begun to reflect in market pricing. Tesla's stock price has remained relatively stable since SpaceX went public and climbed back above $400 on Monday. SpaceX's share price edged up 1% on Tuesday after three consecutive sessions of decline, wiping out $600 billion in market value, and post-IPO fervor continues to fade.

Baird analyst Ben Kallo called the merger of the two companies the "ultimate outcome" and predicts the deal will be completed within 12 to 18 months, with a probability of over 80%.

Merger Narrative Boosts Market Sentiment

The listing of SpaceX has changed the narrative logic surrounding Tesla in the market.

Tigress Financial Partners' Chief Investment Officer Ivan Feinseth characterizes this IPO as Tesla's "narrative catalyst." Dave Mazza, CEO of Roundhill Financial and a Tesla shareholder, says compared to before SpaceX went public, he is now more convinced that the two companies may move toward a merger. Mazza states:

"For many years, Tesla was the only public way to hold Musk premium, but now things have changed. SpaceX interprets the stories of AI and space in a clearer manner. The reason Tesla’s share price can stay above $400 is because acquisition premium is taking shape."

Kallo wrote in his research report that beyond expectations of a SpaceX merger, Tesla’s potential catalysts also include progress on the Optimus robot, further regulatory approval for full self-driving in the EU, expansion of US Robotaxi operations, commercialization of Tesla Semi, and new products for the energy business.

Artificial Intelligence Forms Key Intersection, Valuation Gap Is Biggest Obstacle

Although Tesla is deeply involved in electric vehicles and humanoid robots, and SpaceX focuses on rockets, satellites, and interstellar exploration, the business overlap between the two companies is not obvious. But artificial intelligence is becoming their core link.

SpaceX acquired xAI in February this year and subsequently jointly established the semiconductor manufacturing joint venture Terafab with Tesla, entering the chip manufacturing field. Kallo points out that both companies have similar scaling needs, and a merger could allow both sides to "mutually benefit from larger scale."

The key challenge in any merger deal is pricing, and the sharp fluctuations in SpaceX’s valuation make this issue even more complicated.

Morningstar analyst Seth Goldstein noted in a pre-IPO research report that SpaceX’s valuation changed dramatically in just one year: about $400 billion a year ago, rising to around $1 trillion in February after acquiring xAI, with about $250 billion attributed to its AI business. As of Tuesday’s close, SpaceX’s market cap was 2.05 trillion. Goldstein wrote in the report:

"Given SpaceX's surging valuation before the IPO, we doubt Tesla shareholders would be willing to buy its shares when SpaceX's multiples are far higher than Tesla's."

He also pointed out that the likelihood of SpaceX’s existing shareholders accepting a sharp discount is low, but if the stock price falls near its fair value estimate of $63, both sides may become more willing to negotiate.

Goldstein added that given Musk’s tendency to move quickly, "if a deal is reached within a year, we would not be surprised."

If Merger Fails, Musk Premium Disappears and Tesla Must Rely on Fundamentals

Behind the optimistic expectations betting on the merger, risks are also not to be ignored. Roundhill's Mazza said:

"If no deal is reached, Tesla has no shortcut. SpaceX has now become an independent way to obtain Musk premium, and Tesla can no longer borrow this enthusiasm. It must achieve real results in Robotaxi and Optimus projects to justify its stock price."

Baird's Kallo forecasts Tesla's second-quarter deliveries will be about 392,900 units, with data to be released before market open on July 2; full-year 2026 deliveries are estimated at 1.68 million units.

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