Transcription
Today, we have to talk about the SpaceX Tesla merger. Why? Because it is of utter importance for us to understand as Tesla shareholders, also as SpaceX shareholders, but less so. But as Tesla shareholders, we have to understand: Is this merger going to happen? When is it going to happen? And most importantly, the trillion-dollar question: At what price is it going to happen?
And you know, I had a great debate with Alexandra Merz about this. I was on Pيج's channel, and I had a very well-received video on this topic on my own channel. And today is time to actually take the discussion to the next level. Because I think there is something the discussion right now is overlooking, where I'm extremely certain that I am right about something that no one is mentioning.
Okay, when you scroll through X, you see Herbert here, you see Sern Bashar, you see Larry Goldberg, you see all kinds of smart minds in the Tesla community discussing this, and now also the SpaceX community. And everyone is talking about the big question: What is [clears throat] the ratio between these companies when they merge?
Before we go there, let's take just out of the question the question whether it will merge. Because people like me, and some others like Chamath Palihapitiya, we all agree that the merger is going to happen. There is no doubt that the merger is going to happen. There is no doubt that Elon has to consolidate his companies into a singular entity, the X Corporation, very likely. Who knows, maybe it remains SpaceX, or it's getting renamed into X Corp, which he always wanted to do.
The reason for that is not so much financial engineering. The reason for it is, let's take a step back and put yourself into Elon's mind. He has a lot of work carved out for him. He wants to bring us into a Kardashev 2 civilization. That is a big goal. Forget Mars. Forget the moon. There is a very strategic long-term goal here that we will, of course, not achieve in our lifetime, but a very strategic goal to turn humanity into a Kardashev two civilization, which means the ability to harvest all the energy of the solar system into our civilization. So, we can actually generate infinite, or not infinite, but much more intelligence than we have now, and with that, engineer reality at will. So, we will never get to a true K2, right? That's technically impossible, but it's about growing us from currently a trillions of the sun's energy into a millions of the sun energy harvested, which means roughly a million times more energy for humanity. And that requires SpaceX to succeed.
The fascinating situation here is that we have the ability now with centers to scale ourselves into a millions of a K2 civilization, thanks to SpaceX starting next year. That is a very big deal. I can't overemphasize how important that is. That means economic growth in the multiple million million times, and that's a lot of money. So, that is what we have to achieve. Just to zoom out a little bit from everyday robo-taxi, Optimus, AI satellite discussions. That is what is at stake.
The crazy thing about our times is that we can actually make this happen right now. That we have the business model that exists, that we can be cash flow positive on a K2 trajectory immediately out of the gate, starting latest in 2028 with AI satellites and SpaceX.
Now, in order for all of this to happen, Elon and the team has to be very focused. Friction is bad because the true, the true bottleneck here, the true rare commodity is management attention and focus. If you have two two companies, it is just not a thing you can do for a long time. It is too much effort, too much stupid questions, too much governance issues when you actually do deals between SpaceX and Tesla. It's just stupid. It needs to be consolidated. That's very clear.
Now, when you put yourself into Elon's mind, you know the clock is ticking. You know there is no time. I always tell everyone in my company, there is no time because that's the problem. That also gives us some insight into when this merger should happen. I think Alexander Merz is actually right about one thing, about many things, Alexander, but some things we disagree. But you're right about one thing, and that is that the merger is happening sooner than later because it makes no sense to wait. We have the midterms coming up. We have Democrat interfering interference risk. We have good momentum right now. So, I also believe the merger is going to happen sooner than later.
But now, let's go to the big question here. For example, Alexander Merz, thank you, Tesla Larry, to Larry Goldberg. Now, more important is that we get a merger of equals. Let's all push and hope for that. Have a good weekend, all. And I want to address this big topic because we had this discussion. Is it a merger of equals? Is it something where Tesla and SpaceX merge one to one? Or is it something that I implied that we could even merge one to two? That Tesla owns 66% of the final entity. Uh, some people say it could be different because SpaceX is valued much higher than Tesla right now, even with a 50% premium, as you will see in a second. I have a model prepared for you that will enlighten us a lot about what's going to happen. Even if Tesla gets a 50% premium from here, is acquired at $600, it wouldn't be a merger [clears throat] of equals. It would be something where SpaceX owns more of the new entity under certain circumstances, and that would not be good for Tesla shareholders, and they would be angry, and we introduce risk into the vote.
Now, I want to point out something that is very important to understand that I, I, the community is ignoring. When there is a merger, when there is, you can also call it an acquisition, SpaceX is going to acquire Tesla. We know that for sure, not the other way around, because Elon has the majority 10x super votes on SpaceX. So the surviving entity needs to be SpaceX, even if it's renamed into X Corp. That is clear. SpaceX has to buy Tesla. The next question is: At what percentage share?
Now, that is an economically interesting question, but that is not how an acquisition normally works. Look at Cursor. When we look at the Cursor acquisition, Cursor was not acquired for 3% of SpaceX. At least that was not the deal terms. The deal terms was that Cursor was acquired for $60 billion. Now, what is the difference between 2%, 3%, and $60 billion? Of course, the fact there is no difference, because turns out $60 billion is 3% of SpaceX. But the deal, the contract was not the call option Elon bought for the Cursor acquisition back, you know, a few months ago, was not for 3% of SpaceX, it was for $60 billion. And so we have to understand when there is an acquisition offer, it is made in dollars. It is made in a specific amount that SpaceX is going to buy Tesla for. And it's going to pay that amount in shares at the moment of acquisition, okay?
Now, why is this important? It is extremely important because it means that when that merger is announced, potentially very soon, potentially in the next month, next two months, next three months, then we will not hear an offer for a percent of SpaceX. We are going to hear first and foremost an absolute number. And then Tesla shareholders are going to vote for that number. And that number will be a market cap. It will be, for example, Tesla at $600. If you get a 50% premium, assuming when the offer happens, that is where Tesla is at $400 with a 50% premium, meaning $600. And then, at the moment of vote, we will look at the $600 share price or that $1.88 trillion market cap and translate it into SpaceX shares because Tesla will be acquired for the amount of shares that represent the value that is offered for Tesla. Okay?
And that makes that game a little complicated because at the moment where this offer is made, it is going to be made in dollars, which translates into a Tesla share price. It does not translate into a SpaceX share price, but only in a Tesla share price. And the question how many SpaceX shares you we will get that represent that, let's say, $1.88 trillion 50% premium uh price for Tesla cannot be determined by anyone at the moment of offer, but has to be determined at the moment where the deal closes based on the market price of SpaceX at that moment.
So, let's look at a model I developed here that will clarify that and also clarify the ratchet idea that I brought in that would stabilize that whole deal and take off a lot of risk of Tesla shareholders voting no, 'cause here's where I firmly disagree with Alexandra that the Tesla shareholder vote is a clear yes. Because the institutions and the retail investors in Tesla are not going to vote yes if the deal is bad. I hate to break it to Alexandra. And if there are Tesla shareholders that are also SpaceX shareholders, like Ron Baron, who vote for a bad deal to favor their SpaceX holdings, that is a problem. It's a fiduciary problem for the Tesla board. So, they you open yourself up to massive amounts of lawsuits if you do anything that's sketchy and disadvantages large numbers of Tesla shareholders. So, I believe the deal on the table needs to be good and attractive for Tesla shareholders, or we will introduce the risk that the vote doesn't go through. And that risk is very bad for everyone. And I'm pretty sure Elon and the board and everyone wants to avoid that that risk. That is the reasoning.
So, let's start first with a very simple model where we look at SpaceX, currently share price $183, representing a market cap of $243. Uh, and we have Tesla at $400, representing a market cap of uh, $1.25 trillion. Okay? Maybe I should add here, this is in trillion. So, if we look at premiums, I just for fun put in a 30% premium just for comparison. If you get a 30% premium on the Tesla share price, currently I think that would not be okay because everyone expects robotaxis to scale and if it doesn't scale, people get really, really annoyed and this is all very bad. So, at a 30% premium, we would get a $520 share price offer for Tesla at a $1.63 trillion uh, dollar market cap. At a 50% premium, which I think is more likely, we get a $600 share price at the current share price, of course. That would be if the offer would be today or Monday. Uh, of course, Tesla can easily go up to $490 or whatever and then, you know, this might be adjusted. But just, just for basic, for a basic example, this is what I'm looking at here. So, let's not forget: we do not get an offer in percentage of SpaceX or merger of equals or something like that. We will get an offer in dollars. Okay?
So, what does that mean? Now it gets interesting. Let's for a moment model out the following scenario with no ratchet, meaning this will be an offer, just let's assume a normal merger, a regular merger, which I think might not happen. I think there might be a ratchet. I will explain this in a second, but let's for now assume this is a regular merger and that is exactly the numbers we're looking at, right? And in order to actually determine what the final deal will be for us as Tesla shareholders, we have to look into the future and say, well, at the offer we have now a firm price of $600, let's say for Tesla, that we will get. We will get, you know, baked in a $1.88 trillion market cap. The offer that will be made maybe in July is we will get $1.88 trillion for Tesla, end of story. Okay? That is the offer we have to vote on. But what does that mean in terms of the currency that's being used? The currency that's being used is SpaceX shares. In order to determine that, we have to use SpaceX share price today and assume the percentage change from today, from $183, to the moment where the deal actually closes, which will be at the day of the vote, roughly, right?
And just to show you where SpaceX is right now, here you have, of course, the share price, pretty wild, right, since IPO. So it IPO'd down here at $161, went up to $218, which is nuts, right? And then fell dramatically to $185, in total 14% up in 5 days since IPO, but in between 30% up and then, you know, 20% down. In other words, SpaceX is extremely volatile right now. And you know my prediction that SpaceX will go to IPO price or below, because right now we have a lot of unlocks coming. We have 5% float of the total shares. 5% of SpaceX shares are currently being traded. That might go up all the way to 20% very soon and most of these shares coming into the market will be selling pressure as opposed to now where most of the trading is buying pressure because of the index inclusions. So SpaceX is likely to going to stay here and maybe go up a little bit over the next 2-3 weeks and then starting in August will crash a little bit or a lot. That is kind of nearly inevitable and that has nothing to do with the long-term outlook or the one-year, two-year outlook for SpaceX which is a tremendous company, in my opinion the most important company that ever existed, in my opinion currently totally undervalued. I'm still not buying a single share right now because I'm very sure I get it much cheaper very soon. So that is the situation with SpaceX.
Why am I am I saying this? Because it's very clear. Hey, on this channel we do something very important. We deeply analyze, understand, and predict capital, AGI, and politics. Not just to beat the markets and make a lot of money, even though that's important, but also to build a new society and make the future good for all of us, the pioneers. If you want to help me on this journey, you can do that by doing a very simple thing: Like and subscribe. It helps me a lot. Thank you so much for your support and let's get back to the video.
That's SpaceX is very volatile and so the least likely outcome here is that let's say in November is the vote. Let's go through the merger. Let's assume we get an offer in July just for fun. Let's assume we get a $1.88 trillion market cap offer for Tesla in July. The vote will be earliest in October because that needs to be registered, there needs to be a wait time, there needs to be decision-making by the shareholders. So maybe you have a vote in October, or maybe the earliest in somewhere in September, or more likely in November at the shareholder meeting. So, there will be multi-month lag between the offer and the vote.
So, imagine that someone comes to you and say, "I'm buying your Tesla shares for $600." Then you're going to be happy, maybe. But you're going to ask, "Do I get dollars? Do I get euros?" And they say, "No, you get SpaceX shares." And then you say, "But how are these SpaceX shares valued? I need to know that." And then the answer is, "I don't know. You have to vote on it and then we see when you vote what the value of SpaceX is." That is the problem here. Now, that introduces risk. That introduces enormous risk for Tesla shareholders because they don't know what they're going to get, and they have to wait until the day of the vote to make their minds up by looking at SpaceX.
Let's go through some scenarios what that means in the end. If the offer is $600, 50% premium for Tesla over the current share price, and we vote, let's say in November, if you have 0% change uh change in the SpaceX price, and the price just happens to be $183, and the market cap just happens to be the current market cap of $2.43 trillion, the Tesla percent of the new entity will be 44%. The Tesla-SpaceX ratio will be 0.77, right? Meaning Tesla will own, we as Tesla shareholders will own 44% of the new entity, and that means the SpaceX shareholders will own 46, 56% of the new entity, okay? The ratio from the SpaceX uh perspective of course uh will be 0.77, but uh So, roughly 2/3? No, not 2/3, like a little less than 2/3 will be owned by Tesla uh by SpaceX shareholders.
If SpaceX goes up 20%, and the share price is at $220, which it already was, by the way, a day ago or 2 days ago, and the market cap is $2.9 trillion, then Tesla only gets 30% >> And the market cap is $2.9 trillion, then Tesla only gets 39% of the new entity. Or in other words, then we have a true 2/3 owned by SpaceX of the entire new entity, and 1/3 owned by Tesla of the new entity.
Should SpaceX drop by the date of the vote 20%, share price goes to $146, close to IPO price, still higher but close. Uh, we have nearly a one-to-one merger, $1.94 trillion market cap versus Tesla acquisition at $1.88, assuming 50% premium, 50% one-to-one.
Should SpaceX drop 50%? I'm not sure it's going to drop 50%, but might drop 30% or 40%. And it's exactly timed like that, by the way. If the vote is in November, we might hit the low for SpaceX. Then suddenly the whole thing changes, and Tesla owns 61% of the new entity. Okay? And Tesla now has nearly 2/3 of the new entity, and SpaceX has 1/3 of the new entity.
By the way, if you're confused about that, if you say, "Joe, how's it possible that SpaceX can buy a company that is bigger than itself?" That's not a problem at all. I pointed out 36 billion shares are currently authorized on the SpaceX side. 13 billion are outstanding, which means SpaceX has nearly twice the amount of shares for acquisitions and other purposes. Twice the amount of shares than the entire share base of itself. So, it can easily do this transaction. It has already the shares authorized. It doesn't even need the board to issue more shares. It already has a massive amount of share shares. And by the way, I think Alexandra and some other people said, "Joe, that's totally normal. I see all these companies who have all these shares." Believe me, I have managed companies. I have owned majorities of companies. I have never seen authorized shares being 200% or 300% in the case of SpaceX, authorized shares being 300% of outstanding shares. You have to understand like the outstanding shares are the amount of shares that actually are used, that are owned by people. The authorized shares are all shares that have been authorized by the board. You authorize shares as a company cuz you have some sort of plan. You have some sort of foresight. You say for example employee options pool. You have 10 to 20% in an employees options pool. Right? If you have 10 billion shares, you have another 2 billion shares shelved. You know, I have 10 billion shares that investors and you know, founders own. And then you have maybe 2 billion shares authorized on top of it so you can issue it to new people. Maybe you authorize 50% or 5 billion more if you have a major acquisition eyed, but you do not have 300% of shares authorized. That's a little weird. So, it's not weird in this case because we know what they are planning to do. So, it is absolutely possible.
So, here you see the problem. The acquisition offer will be in absolute dollars. In absolute dollars, we don't know what we get in SpaceX and here you have scenarios that show you how different the outcome can be and there you have the problem. Now, I have an idea of course that I mentioned, but I think it was a little unclear back then what I exactly meant because we need a table to explain this and I think uh, you know, I had the discussion with Herbert as a moderator and Alexandra, but I think here we need to be a little more clear. Let me explain how this would actually look like with a ratchet.
Now, first, why do we need the ratchet? We need the ratchet because we need some sort of certainty by the Tesla shareholders what they actually get. And a ratchet would mean that there is an offer being made for a premium on Tesla's share price as before. For example, right? The premium could be 50%. So, SpaceX, let's say in 3 weeks, says, "We are offering to acquire Tesla for $1.88 trillion market cap payable in SpaceX shares, the equivalent of a $600 share price of Tesla, and Tesla shareholders can vote for it." Now, Tesla shareholders are going to say, "That's maybe fine with me. I like that. What I don't like is that we are getting paid in SpaceX shares, and no one knows what that stuff is actually worth. If SpaceX goes up a lot or gets hyped up a lot, I'm getting much less in terms of the total new entity than if when Tesla uh when SpaceX drops a lot. So, then Tesla basically wants SpaceX to drop as much as possible and not go up." 'Cause the more SpaceX goes up, the less Tesla gets, and the more SpaceX drops, the more uh Tesla shareholders get. That's not great, because they're going to say, "Well, fine. If SpaceX drops 50%, I'm all for that deal. But if SpaceX goes up from here, and it's already inflated, I'm totally voting against that deal." And that would mean that the SpaceX board doesn't know what's going to happen. And that is very bad if we do not know what's going to happen. There's also an incentive of the SpaceX shareholders to push the stock up as much as they can so they get Tesla on the cheap. So, there's a whole range of bad incentives that is happening here, okay? And I don't think we can have that, especially with a small float and so on and so forth. It just opens the door for massive manipulation and resentment and no votes and lawsuits.
So, what is the alternative? It's my ratchet. What is a ratchet? The ratchet introduces a different deal or an addition, an addendum to the deal. It says, "We are offering 50% premium, so you get your $600 per Tesla share, $1.88 trillion in market cap. We are paying with SpaceX shares, but at the same time, we put on an addendum that you get at a minimum one-to-one ratio. Tesla shareholders will get By the way, this is a mistake here. That is a mistake here. I have to fix it. Tesla shareholders get at a minimum Tes- sorry. Not G50. Oops. That means F50 divided by E50. So, Tesla shareholders get $600 per share, $1.88 trillion, unless SpaceX is worth more than $1.88 trillion at the moment of the deal, at the moment of the vote, in which case, they get a one-to-one deal. In other words, it's very simple, the ratchet. The ratchet says, "You're getting acquired for $1.88 trillion, or for the amount SpaceX is worth at that moment, whichever is larger." Okay? That's a one-line addendum, a one-line addition to the deal. We will buy Tesla at the moment of the yes vote of the Tesla shareholders for $1.88 trillion, or the amount of total SpaceX market cap, whichever is greater. In legal terms, we will acquire Tesla for the greater of either $1.88 trillion, which represents a 50% premium over the Tesla share price right now, or the SpaceX market cap. Boom.
Now, if you have that deal, here's how it looks like. If there's no change in in SpaceX's share price by November or whenever that vote is, Tesla gets acquired for $2.43 trillion representing a share price for Tesla of $778, meaning Tesla owns 50% of the new entity and SpaceX owns the other 50%.
If SpaceX goes up 20% to $220 to $2.9 trillion dollars market cap, Tesla will be acquired for $2.9 trillion representing a $933 share price, also representing 50%.
If SpaceX falls 20% from here to $146 share price at the moment of vote, representing a $1.94 trillion dollar market cap, Tesla will be acquired for $1.94 trillion because it's still bigger than $1.88 trillion, representing a $622 share price, and also will own 50%.
So, you see, Tesla always ends up with 50%. If If SpaceX falls 50% from here, very prob- very, very possible, let's say, right? Very possible. Maybe 40%, maybe 50%, maybe 30%. And at a share price of $92 below IPO and a market cap of $1.22 trillion, Tesla will be acquired for $1.88 trillion, the greater of the market cap or $1.88 trillion. In this case, $1.88 trillion representing a share price of $600. Now, Tesla owns 61% of the new entity, nearly 2/3 of the new entity, because it's not Tesla shareholder's problem if SpaceX goes down because they want to get paid. But if SpaceX goes up, it is shareholders. It is also not Tesla shareholder's problem because they go up with it. That's why it's a ratchet. It only goes up. It cannot go below the offer price. And that is in a nutshell what I think has to happen.
If we don't have a deal like this and instead have a deal like this here, this is very bad and introduces all kinds of risks. No ratchet, no deal. It's not that simple. You can just try it, but that would be extremely a beginner mistake because in that case, if SpaceX then gets hyped by manipulators, for example, and I'm not saying the SpaceX shareholders currently are manipulating this, but all kinds of people could manipulate this trying to push the share price up to get the cheapest possible Tesla acquisition, which then prompts all the Tesla shareholders to vote no, would be very annoyed, and then a wave of lawsuits for all kinds of issues here. The ratchet takes care of that and presents a very stable and clean deal. It says, "We are acquiring you for $1.88 trillion with SpaceX shares. Unless SpaceX market cap is above that, in which case you get a one-to-one deal." Which translates at the moment of deal at some significantly higher share price than $600 or 50% premium for Tesla, but it also takes off all the debates about is it overvalued? Is it a trick? Here you have my theory. Let's see what happens. I believe this deal is happening sooner than later. I believe it's going to happen at a firm dollar offer because that's how all deals work, and I believe there must be some sort of ratchet like this to stabilize the deal and enable a clean vote.
So, now you know exactly what I think. Let me know in the comments your opinions, and I hope to see you very soon.