8 Reason Elon Musk Could Merge Tesla (TSLA) and SpaceX - Morgan Stanley

Morgan Stanley analyst Adam Jonas sees Elon Musk's two largest companies Tesla Motors (NASDAQ: TSLA) and SpaceX having a closer relationship over time, and possibly combining.

Jonas provided the following thoughts on the matter:

1. Independence for Tesla gets difficult over time. Given fierce competition from some of the world’s best capitalized tech firms, the long-term independence of Tesla as a stand-alone entity is threatened.

2. Difficult to fathom a succession plan to Elon Musk. "Investors widely expect Elon Musk to, over time, devote increasing amounts of his time and talents to SpaceX, raising the very real question of who could replace him at Tesla. A combination of efforts between the two firms could address this important issue."

3. SpaceX economics may be superior to Tesla. The firm's preliminary modeling of SpaceX reveals a launch business that could be in a highly dominant position, positioning the company to enter highly profitable markets, such as proprietary satellite broadband. The firm has a bull case valuation of $121 billion for SpaceX (vs $52 billion current value for Tesla).

4. SpaceX’s competitive moat may be vastly superior to Tesla on a more sustainable basis. The analyst said the global space economy could be worth $1.1 trillion their base case and $1.75 trillion in their bull case by 2040.

5. No apparent natural buyer for Tesla. The analyst sees limited scope for potential strategic or financial buyers given the capital intensity,economic factors, political factors and aforementioned key man risk.

6. Increasing technological overlap. Jonas notes that on a recent conference call, Elon Musk and his team highlighted areas where Tesla has benefited from SpaceX's expertise in material science, manufacturing and business model. SpaceX employees have been used to beta test Tesla cars for years.

7. Commonality of advanced applied AI. Jonas notes Space and automated driving networks are two of the more commonly cited end-markets where advanced software/hardware systems can benefit from machine learning and deep learning.

8. Historical precedent of SolarCity combination.

The analyst maintained an Equalweight rating and price target of $379 on Tesla

For an analyst ratings summary and ratings history on Tesla Motors click here. For more ratings news on Tesla Motors click here.

Shares of Tesla Motors closed at $305.20 yesterday.

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