SpaceX's second quarterly report since going public, and it turned a profit for the first time. Revenue was $14.6 billion, up 161% year-over-year. Net income was $4.4 billion, compared with a loss of $1.1 billion in the same period last year.
The stock rose 8.06% after hours, closing at $159.70.
The earnings themselves beat expectations. But what really got traders repositioning was a passage in the Q&A session of the earnings call.
Deutsche Bank analyst Edison Yu asked Musk how he viewed the pros and cons of a Tesla-SpaceX merger and what the obstacles were. Musk first acknowledged the awkwardness of his conflicted position, then laid things out clearly. He said the two companies had, at shareholders' request, each established a special committee composed of independent directors.
"Especially on the Tesla side, we need 50% of all shares to vote, not just those participating in the vote, but all shareholders. That's a fairly high threshold."
Texas law sets the default threshold for fundamental transactions like mergers at two-thirds of all outstanding shares. But the law allows companies to lower this in their charter, with a floor of a majority. After Tesla moved to Texas, its charter lowered the threshold to "a majority of all outstanding shares."
Musk holds about 20% of Tesla. That means even if the deal benefits him, he would still need roughly another 30% of shares before he could bring the proposal to a vote.
How the market views the merger
On Polymarket, the market for "merger announced by a certain date" showed probabilities of 18% by year-end and 64% by the end of 2027 as of October 19. By the early hours of October 21, those numbers had become 20.5% and 66.5%, with cumulative trading volume of $1.48 million across the entire event.
Future Fund managing partner Gary Black offered two judgments on X. One was that SpaceX's offer would land "around $420 per share." The other was that the merger is "inevitable," because Musk controls the voting rights of both companies. Since it takes roughly 6 to 12 months from announcement to closing, he said the price "will likely be compressed by arbitrage."
Deepwater's Gene Munster gave a 95% probability. He added a time qualifier: "within the next two years."
Barclays' Dan Levy moved the timing forward. In his October 15 report, he judged that the announcement could come before Tesla's annual shareholder meeting, which is in early December. He also provided an exchange ratio estimate: 1 Tesla share for about 0.7 SpaceX shares.
Amid a sea of probabilities and ranges, RBC put forth a specific number.
RBC Capital Markets analyst Tom Narayan set a price target of $480 per share for Tesla.
On July 7, RBC raised its price target from $475 to $500, citing the market beginning to price in the possibility of a SpaceX acquisition. He believes that excluding any SpaceX deal premium, Tesla alone is worth only about $435. A few days later, the $500 was cut to $480.
So how did $480 come about?
In RBC's assumed estimates, the combined company is valued at $3.74 trillion. Tesla shareholders get 48%, SpaceX shareholders get 52%. Converted into dollar amounts, the Tesla side is $1.795 trillion, and the SpaceX side is $1.945 trillion.
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