While the $3.4 trillion valuation is breathtakingly big, the combined profits generated by the two potential partners wouldn’t even qualify as shockingly small––based on recent results, they’d be negative. In the past four quarters, Tesla posted $3.9 billion in GAAP net earnings. That’s down from $15 billion in 2023, and $7.0 billion in 2024. Even the official figure overstates its core profitability. In the year ended in Q1, Tesla booked roughly $1.6 billion after tax from sales of regulatory credits, a category that’s already dwindling and Musk admits will probably disappear, plus proceeds from shrinking its cache of Bitcoin. So its real “core” earnings are more like $2.3 billion. But let’s stay optimistic and use the official GAAP number at $3.9 billion.
If anything, the cash flow picture is even more alarming. In the S-1, SpaceX acknowledges that it will be deploying capex to build its AI data center footprint far in excess of the cash it generates from operations, and that the gap will persist for an extended period before that franchise turns highly profitable. Last year, its free cash flow deficit reached $14 billion. Through Q1, Tesla was collecting around $1.5 billion a quarter more in cash from selling cars and batteries than it was spending on plant and equipment, mainly for robots and robotaxis still in development, including data centers for operating the latter. But that formula’s reversing: For the final nine months of this year, it’s expecting to spend a total of at least $22.5 billion on capex, far more than the cash from operations delivered by its businesses. Analysts are predicting sharp increases from those levels as Tesla ramps spending on AI infrastructure for self-driving cars, Optimus and robotics facilities, and its Terafab project.
So both sides as stand-alones harbor gigantic investment needs that will far outstrip their ability to garner cash from their basic businesses in the years ahead. Those extra tens of billions have to come from somewhere. The S-1 suggests that SpaceX will float more stock and issue debt to fill the void. That course would dilute shareholders and raise interest expense, curbing profits. Instead of contributing excess cash to ease that burden, adding Tesla––now embarking on a capex blowout––would make the outlook worse.
SpaceX and Tesla are already working closely together. The automaker invested $2 billion in xAI, bought by SpaceX in February, and sells the rocket-maker cybertrucks. SpaceX in the past two years has purchased over $700 million in battery storage systems for data centers from Tesla.
As Trainer argues in an excellent, and highly critical, report on SpaceX prospects, it would need to achieve future numbers no company worldwide shows today in order to reward investors buying at a $1.75 trillion market cap. Specifically, using a discounted cash flow analysis, Trainer puts the bogeys for delivering cost-of-capital returns at $248 billion in net income, and $1.1 trillion in revenues by 2035. The sales number is 1.5x bigger than the top line at Amazon, the S&P leader in the category, achieved in the past four quarters. The profit requirement is $90 billion more than the biggest earner, Alphabet, made over the same span. As Trainer puts it, those targets are “really out of this world.”
But a merger with Tesla would far more than double the challenge for the original SpaceX shareholders. They’d go from owning 100% of the enterprise to 52%. What they’d get in return is Tesla’s just under $4 billion in current profits, a number that once again is boosted by ephemeral sales of reg credits, and is already falling fast. At Tesla’s current valuation of $1.65 trillion, SpaceX would be spending 420 times earnings, meaning that shareholders are getting just $2.3 in earnings for every $1000 they’re paying. The SpaceX investors would also be shouldering Tesla’s huge capex expenditures in addition its own already immense outlays for building AI footprint.
I called Trainer to ask if indeed, it would require 2x the previous numbers for revenues and profits to ring the bell, and he said that’s indeed the case. What are the chances SpaceX-Tesla could achieve nearly $500 billion in profits and $2.2 trillion in revenue a decade from now? As Trainer told me, “It’s a kind of suspended disbelief, squared.” Musk’s proven a wizard at suspending belief to send Tesla and SpaceX valuations to the stars while their earnings remain stuck earthbound. Buying Tesla using SpaceX stock would solve the EV pioneer’s big time over-valuation problem by cashing out its shareholders. But it would only transfer that burden to SpaceX, and make SpaceX’s math problem much worse. Musk’s on the verge of forging a creation that must achieve feats so hard to believe that, at long last, even his today’s true believers may stop believing.
