A SpaceX and Tesla Merger Would Build a Conglomerate Just as Spin-Offs Thrive

Elon Musk has confirmed that talks to merge SpaceX (NASDAQ:SPCX) and Tesla (NASDAQ:TSLA) are underway. Such a deal would create a company worth more than $3.5 trillion and a leading conglomerate with a presence across artificial intelligence (AI), electric vehicles (EVs), space launches, social media, and robotics.

Traders on Kalshi and Polymarket are increasingly convinced that Musk will try to merge the two companies. A Kalshi market puts the odds of a deal being announced before May 1 next year at 60%, while a separate Polymarket contract sees a 66% chance of an announcement by December 31 next year.

SpaceX and Tesla Would Become a Big Conglomerate

Tesla and SpaceX already offer different services. In addition to electric vehicles, Tesla is a major player in clean energy and is working on launching Optimus, its robots. It is also a partner with SpaceX in the Terafab project that aims to become a big semiconductor manufacturer in the US.

SpaceX, meanwhile, provides satellite launch services to governments and corporations. It also offers Starlink, the social media platform X, and AI solutions through Grok and its data center business. The company is now looking to become a major telecom player after recently acquiring a low-orbit spectrum.

Benzinga data estimates that Tesla’s revenue will be $122 billion next year, while SpaceX will make $177 billion. If these estimates are correct, the company will make close to $300 billion in annual revenue. 

Corporate Spinoffs are Doing Well

The challenge, however, is that merging the two companies would go against the grain in the corporate world. In recent years, companies have been moving in the opposite direction, with conglomerates breaking themselves up.

One of the best examples is General Electric, which was once the biggest conglomerate in the world. To turn around the company, Lawrence Culp, decided to separate the company into three: GE Aerospace, GE Vernova, and GE Healthcare. Today, these companies have a combined market capitalization of over $522 billion. 

Another good example of this is Western Digital (NASDAQ:WDC), which separated from SanDisk (NASDAQ:SNDK) last year. Today, SanDisk has a market capitalization of $178 billion compared with Western Digital’s $128 billion.

Many large companies have launched spinoffs recently. Honeywell created Honeywell Aerospace, Corteva spun off Vylor, and DuPont separated its electronics business as Qnity Electronics. Other recent examples include Danaher’s creation of Veralto and FedEx’s separation of FedEx Freight Holding.

There are signs that these spin-offs are thriving. The Invesco S&P Spin-Off ETF (AMEX:CSD) ETF has jumped by 90% in the last five years, beating the S&P 500 Index, which has jumped by 62%. 

Spinoffs tend to perform better because they can specialize in their respective businesses. A company focused on a single industry is also easier to value than one offering a range of services. In a SpaceX and Tesla merger, it would be extremely difficult to determine the right valuation multiple for the combined company.

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