“Do I Think It Would Be a Good Idea? Yes.”

Dear Fellow Investor,

Good morning. Happy Sunday!

I hope you’re enjoying the weekend.

But first, let’s talk about Elon Musk.

Last Sunday, I told you about a Wall Street bank that thought Elon might merge Tesla and SpaceX.

Two days later, Elon brought it up himself.

On Tuesday, SpaceX held its call with Wall Street analysts after its third-quarter results.

Somebody asked about a merger.

Here’s what Elon said:

“Do I think it would be a good idea? Yes.”

What Elon Actually Said

Let’s be careful here, because the details matter.

Elon confirmed that both Tesla and SpaceX have formed special committees to look at a deal.

He is not on either one.

He called himself a “conflicted party” — because he runs both companies.

He said the committees haven’t agreed on any terms.

And he said there’s no guarantee they will.

He even warned that some people assume a merger is a certainty, and that would be “overstating it.”

He compared talking about it to “tap dancing through a minefield.”

That’s about as cautious as you’ll ever hear Elon Musk.

But he also said this:

“I do think there is a lot of merit to merging and a lot to be gained.”

So it’s no longer a rumor from a bank.

It’s on the table.

Why the Market Paid Attention

The timing was not an accident.

SpaceX just posted its first profit as a public company.

Revenue jumped 161%.

Its AI business grew about ninefold — much of it from renting out computing power to other AI companies.

SpaceX stock rose almost 8% the next day.

Then Tesla reported.

Tesla beat on earnings, surprised everyone with positive free cash flow and cut its spending plans for the year.

And yet the stock still slipped as tech stocks sold off later in the week.

Put those side by side and you can see why Wall Street is talking.

SpaceX is worth about $2 trillion.

Tesla is worth about $1.5 trillion.

Combined, it would be one of the largest mergers in history.

Why Elon Wants It

Fair question. Let’s dig in.

Elon said a merger would make sense for the work both companies are doing on chips, artificial intelligence and software.

The two already share a big project.

Terafab, the chip-manufacturing effort Elon launched, is a joint effort between Tesla and SpaceX.

Tesla has the cars, the robotaxis and the Optimus robots.

SpaceX has the rockets, the satellites and a fast-growing AI computing business.

Right now, every big decision that touches both has to go through two separate boards.

One company would mean one board and one plan.

Where I Come Down

Regular readers know I ask four questions before I buy anything.

Do I understand the business?

Am I comfortable with management?

What is it worth?

And what do I have to pay?

Last week I said a merger would test question two and question four at the same time.

I still believe that.

I’ll give Elon credit for one thing.

Stepping aside and letting independent committees negotiate is the right way to do it.

That’s exactly how it should work when one man sits on both sides of the table.

But the committees still have to get the price right.

And at least half of Tesla’s shareholders would have to say yes.

Elon himself called that “quite a high hurdle.”

So I’m not cheering yet.

I want to see the terms.

The Part That Doesn’t Need a Merger

Here’s what I’m much more confident about.

Merger or no merger, Elon’s empire keeps getting bigger.

And the bigger it gets, the more it relies on smaller partners to do the jobs Elon doesn’t want to do himself.

I’ve said this before.

The biggest percentage gains rarely go to the giant.

They tend to go to the smaller companies standing next to it.

Take the International Space Station.

NASA is paying SpaceX up to $843 million to bring it down.

But SpaceX isn’t building the replacement.

NASA has budgeted roughly $1 billion a year to rent space on a privately built station instead.

And there’s one small company NASA has been funding since 2021 to build exactly that.

Its design has passed NASA’s official review.

There’s a life-size mockup of it sitting at Johnson Space Center in Houston.

Northrop Grumman dropped its own station plans to work with this company instead.

It has already paid SpaceX $90 million to carry its station into orbit.

And it has more than half a billion dollars in contracts signed with other customers.

On top of that, it has a defense arm with well over $300 million in backlog.

That’s a lot of real business for a company most investors have never heard of.

The company is less than half a percent the size of SpaceX.

Whether Tesla and SpaceX become one company or stay two, Elon is still the ride.

This company could be the landlord.

Here’s who it is and how NASA’s rent deal works:

Enjoy the rest of your weekend.

I’ll see you tomorrow.

“The Buck Stops Here,”