Why Elon Might Merge Tesla And SpaceX

Karim Bousta · DVx VenturesUncertain

Tesla's auto business is shrinking but its cash flow and margins improved, showing it can partly fund moonshots.

Auto business trends are negative and deliveries have not grown much, but Q3 free cash flow of about $1.5 billion improved on last quarter and auto gross margins rose two points without sacrificing margin through discounts. He attributes this to execution. The cash is small against the tens of billions of capex needed, but it shows the car business can deliver its part of funding the big projects in coming quarters. His view is partially positive, not a full endorsement.

“free cash flow, which is one of the key metrics that we should look at, has improved compared to last quarter... the car business can deliver its parts in generating some cash that is going to be needed in the coming quarters.”at 4:19

Ed Elson · Prof G MediaBearish

Tesla's roughly 300x earnings multiple requires robotaxis and robots to explode; he is skeptical.

Tesla trades at more than 300 times earnings, against about 17 times for the rest of the auto industry. Improving margins and execution in a declining auto business does not justify that. To support the valuation, the company needs an enormous new business to explode, such as robotaxis and humanoid robots, and he has not seen evidence yet of real markets for either. He says he is skeptical of the stock.

“trading at more than 300 times earnings, you have the rest of the industry trading at around 17 times earnings... I'm skeptical of of this stock.”at 6:12

Karim Bousta · DVx VenturesBearish

Tesla's robotaxi progress is unproven; no material milestones yet and trust-building and scale remain hard.

Tesla has announced no material numbers, milestones or deliverables for robotaxis, and it is running a very small fleet slowly while still fine-tuning the system. Trust from regulators and the public is the priority, and without it there is no business. Even after proving safety with about 100 cars, Tesla must scale to about 10,000 and catch up to Waymo, which delivers around 500,000 fully autonomous rides every week. He agrees with the host's skepticism.

“it's hard to say that it's going well when we don't see any material number or milestones or deliverables announced by the company that we can look into.”at 8:49

Karim Bousta · DVx VenturesUncertain

A Tesla-SpaceX merger could help via shared AI compute and chips, but won't fix Tesla's core execution work.

He says the outcome depends on the deal, which has not been seen. For Tesla there are real benefits: access to SpaceX compute and AI, the ability to share chips, and SpaceX's cash-generating Starlink business as a funding source. But the merger does not change what Tesla must do itself. Robotaxis, Optimus, manufacturing, deployment, charging and finding customers still have to be built by Tesla, and the merger does not help with that physical ramp.

“there's for sure interesting opportunities for both companies. I think on the Tesla side, having access to SpaceX compute and AI and being able to share chips is going to be very interesting.”at 10:53

Mark Mahaney · Evercore ISIBullish

Meta's ad growth is strong and sticky, with AI recommendations lifting engagement and pricing.

Revenue grew 26% year over year, a record. Engagement grew at double-digit rates at Facebook and Instagram, which he attributes to AI content recommendations. Price per ad rose 14% and ad impressions rose about 10 to 12%. Guidance implies mid-to-high twenties growth next quarter. At roughly twice the industry average, the growth should be resilient and sticky. Management gave little next-year guidance beyond calling growth strong.

“The revenue growth that they're currently doing, which is about two X that of the industry averages, should be resilient, should be sticky.”at 21:30

Mark Mahaney · Evercore ISIBullish

Meta's Muse app is a killer consumer AI product that proves Meta can build frontier AI.

Muse has been at or near the top of the download charts for about 30 days, and its users are engaged. It is currently the only major option outside a paywall, so Meta has essentially the whole market to itself. Mahaney is not sure it will become the personal agent everyone uses, but it has a decent chance. Wonderful is seen as bringing Meta to the frontier of AI for the first time, which gives the market evidence that Meta's AI spending produces products. Monetization is still to come, and he expects it to be fairly easy for Meta.

“They launched a really killer app... I don't know that this is the personal agent that we're all going to use, but it's got a decent shot of being, and right now they're the only one that's outside a paywall.”at 23:32

Mark Mahaney · Evercore ISIBullish

Meta's capex and R&D are already powering its core ad business, which supports the spending.

Meta's full-year capex is about $135 to $145 billion. Mahaney argues the spending is already paying off in the core business. Ad revenue growth of 26%, twice the industry average, is partly due to AI-driven content recommendations and ad targeting enabled by that investment. Muse and possible enterprise products are extra upside. He is less sure about the monetization of Muse and about Meta's claim that it can cut compute cost per unit 10x, which he says will need to be proven.

“I think their CapEx and R and D investments are still further powering the core business.”at 27:32

Mark Mahaney · Evercore ISIBullish

Meta for Business subscriptions could be a big opportunity across its 500 million business users.

Meta says about 500 million businesses worldwide use Meta and its apps, and WhatsApp is effectively the internet for much of the world. A subscription to Meta for Business that charges each small business a modest monthly fee could be a big opportunity at that scale. He is skeptical about Meta in enterprise, though, and sees it as a consumer and small-business AI play rather than an enterprise one.

“with Meta for Business, a subscription business that may charge each one of these businesses... something relatively small a month, but that could be, given the scale of that number of businesses, that could be a big opportunity too.”at 28:29

Karim Bousta · DVx VenturesBullish

SpaceX has a proven cash engine in Starlink and compute rental, unlike Tesla.

Unlike Tesla, SpaceX has shown it can build a cash-generating engine. Starlink, together with renting out compute, generates billions of dollars every quarter. That money is what makes SpaceX a useful funding source for Tesla in a combination, which is the main financial argument for a merger.

“unlike Tesla, SpaceX has demonstrated that they are creating this cash generating engine, Starlink... the ability to rent compute and generate billions of dollars every quarter.”at 10:55

Ed Elson · Prof G MediaBearish

Traditional streaming is borderline uninvestable because YouTube's algorithmic user-generated model is winning.

Netflix's revenue growth slowed to 12%, from about 14% and then 16% in the two prior quarters. YouTube now holds almost 15% of total US TV viewing time, the largest share, while Netflix has under 8%, less than half of YouTube's. YouTube wins because it is an algorithmic, user-generated platform, not because of better creative or a bigger budget. Against YouTube, TikTok and Instagram, the model of spending billions on productions that may not resonate is fundamentally flawed.

“That is why traditional streaming, in my view, is borderline uninvestable. Because in a world where YouTube and TikTok and Instagram exist, the business model of spending billions of dollars on production costs... is fundamentally flawed.”at 34:04