A trillion-dollar merger pricing game: Market confidence in merging with Tesla (TSLA.US) depends on SpaceX (SPCX.US)'s three-quarter report released on Tuesday

The Zhitong Finance App notes that SpaceX (SPCX.US)'s three-quarter report has never been given as much weight as this time, far exceeding the weight of a financial report itself. According to Wall Street, the report card released after the market on Tuesday is not only another stress test of Musk's “AI+ Space” narrative, but also probably an “invisible pricing day” for a trillion-dollar merger case.

What the market is really concerned about is not whether SpaceX is making a profit, but rather how exactly this deal fits, at what price, and which direction this financial report will push the probability of a merger.

The transaction structure has already surfaced: full stock, premium, finalized before December

Although Musk never officially acknowledged it, Barclays analyst Dan Levy anticipated that this would be an all-stock deal. Structurally, this is likely to be a “reverse merger”: the larger SpaceX was the acquirer to swallow Tesla (TSLA.US) at a premium.

The reference valuation given by Barclays is SpaceX at 2.1 trillion US dollars and Tesla at 1.5 trillion US dollars. Based on this estimate, Tesla shareholders can exchange about 0.7 SpaceX shares per share. The premium is not reflected in “overpayment of cash,” but rather in the exchange ratio itself — Tesla shareholders get exposure to SpaceX, which is growing faster and has stronger AI.

The schedule is equally clear and almost strict. Levy determined that the announcement must be made between the end of October and the beginning of November to complete the vote in time for Tesla's annual shareholders' meeting on December 6; once this window is missed, the merger may still be announced within 6 to 12 months, but the time for shareholders' voting will be postponed accordingly.

In terms of the governance structure, Barclays estimates that Musk will hold about 37% of the combined company's shares, yet hold 56% of the voting rights — this means a “minority ownership, majority control” transaction, which is a sensitive point that cannot be circumvented during market evaluations.

Wedbush analyst Dan Ives went a step further and interpreted the Roadster launch in mid-October as “putting the relationship between Tesla and SpaceX on the table in a touchable way.” The car's propeller, pressure vessel, and control system are essentially SpaceX technology, not automotive engineering.

Ives previously estimated that the probability of the two companies merging in 2027 is as high as 80%. Deepwater's Gene Munster called the demo “limited commercial value,” but also acknowledged that it revealed Musk's intention to merge the two companies into one. Musk's July phrase, “Company mergers cannot be discussed on earnings calls,” is widely read by the market as “acquiescence rather than denial.”

The financial report is the hidden pricing date for this deal

The most subtle aspect of this deal is that once the full share exchange is established, SpaceX's share price directly determines how much stuff Tesla shareholders can get. In other words, the earnings report on Tuesday is essentially setting a benchmark share exchange price for Tesla shareholders. This is the key to understanding “why financial reports affect confidence in the consolidation.”

The logical chain is bidirectional.

Direction 1: Good financial reporting = stronger confidence in the consolidation. If SpaceX hands over a report card with strong revenue and restraint — the market expects revenue of $12.89 billion and is expected to record the first profit season since listing — the stock price stabilizes or even rises, then the exchange ratio of 0.7 shares will be even more attractive to Tesla shareholders. Tesla shareholders are willing to switch because they are exchanging AI and Starlink growth exposure instead of paying extra money. The higher the stock price and the stronger the fundamentals, the more persuasive this “premium acquisition with SpaceX as the main body”, and the less resistance Musk has to peddle the deal to the board of directors and shareholders.

Direction 2: Bad financial reports = confidence in the consolidation is undermined. If there is another round of huge capital expenditure (the market predicts capital expenditure as high as 19.6 billion US dollars this quarter and free cash flow minus about 11.6 billion US dollars), the stock price continues to fall, and the situation is completely reversed. Tesla's shareholders' meeting discovered that the SpaceX exposure they had exchanged “became expensive” — the same Tesla stock could be exchanged for SpaceX had shrunk in value. To make matters worse, the market's doubts about SpaceX's business model will lead to questions about the merger itself: how could a buyer with even free cash flow take over $25 billion in premium annualized Tesla with an annual capital expenditure of over $25 billion? The “story” of the merger will change from a smooth wind to a headwind.

This is exactly the script for the second quarter. SpaceX's revenue of 7.8 billion US dollars exceeded expectations during the quarter, and Starlink users rushed to 12 million, but AI infrastructure expenses of about 16 billion US dollars significantly exceeded market expectations, and the stock price plummeted 11% after the market. When the market shifts its focus from “how much computing power can be generated” to “whether computing power can be monetized at a good price”, any overspending will be magnified into doubt about the business model — and the credibility of the business model is the cornerstone of consolidated pricing.

The analysts' differences are essentially differences over “consolidated pricing”

There is no real unity of opinion among those who read this financial report, and the source of the disagreement happened to be the consolidated price anchor.

UBS and Goldman Sachs see AI computing power as the core engine for revenue recognition. The former expects AI to contribute $7.6 billion in revenue this season, and the overall revenue is expected to reach $13.8 billion; the latter positioned AI as the “next growth engine” and raised the target price to $230. In their framework, SpaceX's valuation can support a higher benchmark exchange price, and the merger is a good deal for Tesla shareholders.

Morgan Stanley, on the other hand, placed the focus on execution risk, gave the Starship's 14th flight a B+ rating, and viewed whether the 15th flight could be successfully recovered as the most critical single-point catalyst. Although Evercore ISI raised the target price to $275, it suggests that the current quarter may be judged more by the computing power target given by management (over 2 gigawatts at the end of the year, operating rate of 100 billion US dollars in annual revenue) rather than the financial figures themselves. The subtext is: if these long-term goals are discounted by the market, then SpaceX's valuation, which is the combined “pricing denominator,” will also loosen.

Confidence, was priced earlier than the deal itself

Back to the original question: How does the market view SpaceX's earnings report's impact on the merger? The answer is that the market is already using this financial report to price “consolidated confidence.”

The merger has not been officially announced, but analysts have already deduced the transaction framework of the share exchange ratio, time window, and shareholding structure in advance. And the reason why Tuesday's earnings report is important is that it will be the first hard data point that can substantially verify “is SpaceX worth this pricing.” A strong financial report is tantamount to putting a nail on the consolidation's pricing; a financial report dragged down by huge expenses will loosen this nail and return the deal from “arrow on the string” back to “unresolved.”

For Tesla shareholders, this game of confidence began long before the merger announcement came to fruition.