Some thoughts on the merger of equals (MOE) scenario between SpaceX and Tesla that is being pushed by many Tesla influencers. For starters, MOE deals are relatively rare. And they are even more rare where the surviving entity has a dual class share structure (SpaceX), the acquiree (Tesla) has a single class share structure, and the dual class share structure remains in place post-merger. I have found only one transaction that meets this criteria: First Citizens / CIT Group, closed Oct. 2022. In any case, MOE deals are commonly structured with a fixed exchange ratio. The effect of this structure is that, between signing and closing, the stock of each company typically moves in unison. If Company A stock goes down 10%, Company B stock typically follows, and vice-versa. The two stocks effectively trade as a single “synthetic” combined entity. Large MOE transactions, particularly those involving significant regulatory scrutiny, can easily take 12-18 months from signing to closing. An MOE between SpaceX and Tesla would likely take that long to close, if not longer, due to mega-cap scale, cross-industry elements, and likelihood of extended antitrust and sector-specific reviews. SpaceX is set to IPO at an expected $1.75-$2.0T valuation. Let’s assume, for purposes of this illustration, that both companies have a market cap of $1.75T at signing, that a deal is signed in Q1 2027 and the fixed exchange ratio is set at 50/50. For 4-6 quarters (if not more) following signing to closing (Q1-Q3 2028), SpaceX and Tesla share price movement would be highly correlated. If one company releases bad news (weak earnings, regulatory setback, etc.) and its standalone stock declines, this directly lowers the expected market cap (and thus value) of the combined post-merger company. Because ownership percentages are locked by the fixed ratio, the market reprices both stocks downward proportionally. The underperformer’s decline weighs on the outperformer. If one company outperforms, it provides a partial offset and will lift both stocks; however, it does not lift up the underperformer beyond what the blended combined valuation justifies. The net effect is usually that both stocks trade lower (or move in the same direction) than they would have without the underperformance. From a Tesla shareholder perspective, this means that even if robotaxi and Optimus scale meaningfully by 1H 2027 and start materially contributing to Tesla’s financials, if SpaceX underperforms and its market cap declines, then Tesla’s market cap at best would have limited upside (and could potentially decline!) in that scenario, notwithstanding what would otherwise be a re-rating of the stock and likely a significantly higher market cap absent the MOE. The reverse is true as well. If SpaceX outperforms, it may marginally boost Tesla’s market cap during that time period. But Tesla investors should be asking themselves, what is the most likely scenario, looking out 24 months from now? With robotaxi at scale and Optimus rolling off the production line, Tesla market cap could easily double by the back half of 2028. How confident are you that SpaceX will double its market cap in its first two years as a public company? How will you feel if Tesla delivers beat after beat, quarter after quarter, after a deal is signed, but SpaceX underperforms, so Tesla share price stays flat for another 2 years when it might otherwise be trading $1,000+? I fail to see how rushing into a merger with SpaceX makes sense from a Tesla investor perspective given the expected timeframe for a transaction (~12-18 months from signing, maybe longer), that Tesla is on the cusp of a re-rating (for which investors have been patiently waiting 5+ years) in the midst of that timeframe, and that SpaceX is set to IPO at a record valuation that may or may be sustained during that timeframe. @smdcapital @DanBTC916