SpaceX Seen as Potential Suitor If Tesla Struggles, Musk Wanders

(Bloomberg) -- A Morgan Stanley analyst said Tesla Inc. could struggle on its own and that Elon Musk's attention may wander more toward his other-worldly endeavors, potentially leading to a combination with SpaceX.

Tesla faces “fierce” challenges from better-capitalized companies pursuing sustainable transportation, Morgan Stanley's Adam Jonas wrote in a report Tuesday. SpaceX's rocket-launching business is less susceptible to competition and could become a more time-consuming focus of the chief executive officer that the two companies share, 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,” Jonas wrote. “A combination of efforts between the two firms could address this important issue.”

Musk said last year that there was too little cooperation between Tesla and Space Exploration Technologies Corp. to justify merging the two, dismissing the idea that had been raised by one of Jonas's colleagues as “quite tenuous.” More recently, he's alluded to growing behind-the-scenes collaboration that has sped up Tesla's assembly lines and kept development of Autopilot software humming through a period of executive churn.

Read more: How Tesla and SpaceX Share More Than Just Musk

Tesla, which has shirked traditional car advertising, also will engage in a bit of cross-company marketing promotion in January. SpaceX's Falcon Heavy rocket will carry aloft a Roadster sports car owned by Musk as payload when it fires toward Mars orbit for its maiden voyage.

Representatives for Tesla and SpaceX didn't immediately respond to requests for comment on the Morgan Stanley report.

No Natural Buyers

There are a range of reasons Jonas pointed to in writing that there's “no apparent natural buyer” for Tesla, including how much capital it goes through. The company has been burning through more than $1 billion a quarter amid massive investment in making the Model 3, a $35,000 car that it's struggling to mass manufacture.

SpaceX, meanwhile, has already flown 16 missions in 2017, double the number in 2016. Jonas's base estimate is that SpaceX is a $46 billion company, more than double the valuation it raised money at recently.

Musk, 46, has combined companies he's involved with before, having overseen Tesla's acquisition of SolarCity Corp. last year. He was chairman of the money-losing panel installer and his cousin, Lyndon Rive, was the company's chief executive officer. One critic of the deal, proxy adviser Glass Lewis & Co., criticized it as a “thinly veiled bailout plan” for SolarCity.

“While the combination of Tesla and SolarCity was driven by a unique set of factors,” Jonas wrote, the deal showed “the willingness of Tesla leadership to undertake strategic actions to consolidate its separate interests in the interest of both financial sustainability and technological overlap.”

To contact the reporter on this story: Dana Hull in San Francisco at dhull12@bloomberg.net.

To contact the editors responsible for this story: Craig Trudell at ctrudell1@bloomberg.net, Anne Riley Moffat

©2017 Bloomberg L.P.