There's growing speculation Tesla and SpaceX could merge - here's why a deal would make sense

Associated Press

SpaceX CEO Elon Musk.

• Morgan Stanley analyst Adam Jonas teased a merger between Tesla and SpaceX.
• Elon Musk is CEO of both companies.
• Tesla faces a challenging 2018, but so does SpaceX as it continues to march toward a Mars mission.

Last year, Tesla absorbed struggling SolarCity. At the time, Elon Musk was CEO of Tesla and Chairman of SpaceX.

As the private-rocket company continues to launch rockets and pave the way for a Mars mission, speculation about an IPO has intensified. But what if SpaceX never goes public. What if instead, it merges with Tesla?

Morgan Stanley analyst Adam Jonas teased that prospect in a research note published Tuesday.

"There are a number of reasons why we see the potential for Elon Musk's two largest companies to have a closer relationship over time, including possible strategic partnerships, technology transfer, co-investment and potentially a combination," Jonas wrote.

SpaceX is, of course, private, so absorbing it would theoretically be simpler for Tesla than acquiring SolarCity, which was a public company. It would also tidy matters up for Musk, who is often seen as stretched between the two firms, one based in the San Francisco area, the other near Los Angeles, where Musk maintains he primary residence.

Jonas also delved into that issue.

"In our view, Tesla's 'key man' risk is higher than any other company we cover, possibly rivaled only by Sergio Marchionne at FCA," he said.

"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."

The coming year is going to be critical for Tesla as it works to get its Model 3 mass-market vehicle ramped up. But investors won't want to overlook SpaceX's ambitions, nor forget how much cross-pollination there is between the two companies.

Get the latest Tesla stock price here.