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Why a merger of SpaceX and Tesla is a bad idea

Elon Musk has made it very clear that he wants a merger between SpaceX and Tesla.

Indeed, the latest demonstration of the Tesla Roadster 2 was littered with references to SpaceX and the value they bought to this vehicle through the technologies they contributed to it.

I would go so far as to say that the entire raison d'etre for the Roadster 2 is to convince the authorities, the public and investors that such a merger would be good for both companies.

However, dig a little deeper and you'll see who would really get the most benefit.

For a start, if the two companies merged it would hugely strengthen Musk's control over Tesla.

Right now, Musk only holds about 20 percent of the voting stock in Tesla but since he holds a significant majority of the voting stock in SpaceX, a merger would see him regaining total control of the car company. He would hold around 56 percent of voting stock in the resultant combined entity.

Such a merger would also wipe away the operational targets that are currently in place. Under the terms of Musk's 2025 CEO Performance Award, he has to hit some very difficult market-cap targets and complex operational milestones in respect to revenue and profits in order to vest some 423 million shares. However, a merger would completely erase those milestones and see Musk benefit enormously from a financial perspective.

In short, Musk won't get any cash but he will get a massive pile of new stock in the new SpaceX/Tesla megacorp.

Upon completionof the merger he would immediately get a huge chunk of his 437 million Tesla bonus shares and those shares would covert into stock of the new megacorp. Experts estimate the value of those unlocked stock bonuses to be up to US$1 trillion.

Would SpaceX and Tesla benefit from the merger?

Possibly, but nowhere near as much as Musk himself would.

Perhaps now it becomes more obvious exactly why he actually went ahead and demostrated "flying cars" with SpaceX cold-gas thruster technology.

The world's richest man wants to get even richer (by a significant amount) and he wants absolute control of both companies. This is the path to achieving those goals.

Are you worried that a lack of critical thinking on the part of authorities, the public and the investment community means he'll probably pull this off?

Well you should be.

Carpe Diem folks!

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