Cathie Wood Says Tesla, SpaceX Could Drive Up To 9% GDP Growth: ARK Sees Merger As Win For Both Shareholder Bases

ARK models a 3.8-fold boost to Tesla investor returns and a 7.2-fold boost to SpaceX investors’ incremental returns.

• Equal merger upside implies a 24% Tesla premium and 42% of projected 2031 combined market value for Tesla shareholders.
• Tesla’s robotaxi cash could fund SpaceX’s compute expansion, with 10 gigawatts potentially costing over $400 billion.
• ARK targets Tesla at $4,400 by 2031, assigning 80% of enterprise value to robotaxis and 14% to Optimus.

Cathie Wood says Tesla and SpaceX are leading the economy toward up to 9% real GDP growth, while ARK Investment Management sees a potential merger delivering substantial gains for both companies’ shareholders.

While TSLA stock jumped 5% to its best day in nearly 2 months on Monday, SPCX slipped 0.4%.

Tesla accounted for $624.7 million, or 10.4%, of ARK’s flagship ARK Innovation ETF (ARKK) as of last week. The ARK Venture Fund, which first backed SpaceX in October 2023 while it was private, reported its stake at 7.5% of assets as of Aug.31. 

ARK Maps Potential TSLA-SPCX Merger Upside

“Here, Tesla and SpaceX are leading us into this 7% to 9% real GDP growth world. And we can’t get our heads around it,” Wood said in a video on X. Wood said the difficulty in understanding that outlook stems from how accustomed investors have become to a slower-growing economy. 

“I think what’s confusing to a lot of people is we’ve been in a 3% GDP growth world for so long,” she said, adding that Musk is helping usher in faster growth after 125 years of 3% GDP growth. 

In its latest newsletter, shared on X, ARK said that the companies’ growing operational overlap boosts the financial case for a merger. “Given the increasingly entangled business interests, the shared CEO, and the cohesive strategies and cultures, ARK believes that combining the companies would be a substantial win for both shareholder bases,” the firm said.

ARK used its Oct. 20 forecasts and Oct. 23 closing prices to model a merger through a share swap, with neither company paying a premium. It projected a 3.8-fold boost to Tesla investors’ returns and a 7.2-fold boost to SpaceX investors’ incremental returns. If both investor groups shared the added upside equally, SpaceX would pay about 24% above Tesla’s Oct.23 closing price.

In such a scenario, Tesla shareholders would hold about 42% of the combined company’s projected market value in 2031. SpaceX would generate 62% of its revenue and 69% of its profit before interest and taxes.

ARK: Robotaxi Revenue Could Power SpaceX’s Expansion

ARK’s key argument is that Tesla’s potential cash generation could drive SpaceX’s capital-intensive expansion. “ARK’s modeling suggests that Tesla’s Cybercab and robotaxi network could prove extraordinarily cash-flow generative and that SpaceXSI will have plenty of opportunities to put that cash flow to good use,” the firm said.

ARK believes computing on Earth and in space could become a bigger business than Tesla’s robotaxis, which could themselves surpass Starlink. Optimus could be an even larger opportunity, but ARK says it would need SpaceX’s advanced AI to grow.

However, building the computing capacity would be expensive. ARK estimates that installing 10 gigawatts of Nvidia Vera Rubin systems could cost more than $400 billion, before other data-center costs. For Tesla alone, ARK’s base-case price target is $4,400 per share by 2031. Its model assigns about 80% of Tesla’s enterprise value to robotaxis and 14% to Optimus.

Operational Overlap Boosts ARK’s Merger Case

ARK highlighted the companies’ work together on the Terafab chip facility and the next Tesla Roadster, as well as Starlink antennas in Cybercabs and Grok’s use in Tesla vehicles. ARK said a merger could make those projects easier to manage and help Musk oversee both businesses more efficiently.

On the other hand, Musk was more cautious during SpaceX’s recent earnings call. “I think some people out there assume that a SpaceX and Tesla merger is a certainty, and I think that would be overstating it,” he said.

Independent board committees are reviewing a possible deal, with Musk excluded because of his conflict of interest. He said they had not agreed on terms. Tesla’s approval requirement would also count all outstanding shares, including those whose owners do not vote.

ARK still expects an agreement. “Ultimately, their respective boards and shareholder bases will determine fair value, but ARK’s research is pointing to a highly accretive transaction for both groups,” the firm wrote. “As a result, we are confident that SpaceXSI and Tesla will come to terms.”

How Do Retail Traders Feel About TSLA And SPCX?

On Stocktwits, TSLA sentiment was ‘bearish’ as its 24-hour message volume surged 690%, while SPCX sentiment was ‘bullish’ as message volume jumped nearly 300% over the same period. 

One user said, “$SPCX to make this merger happy for everyone SPCX needs to be in $200+ range; ratio from 3.31 to 2.5.  Expect this after flight 15 if successful.”

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Another user said, “$TSLA Merger is hyped. Both SPCX and TSLA holders will lose. TSLA will drag everything down. Look at earning closely”

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While TSLA stock has declined 13% year-to-date, SPCX fell 9%.

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