Whatever else you might say about Elon Musk, he knows how to drive the narrative. His carnival-barker ability to say exactly what will steer his audience's attention to the next shiny gewgaw keeps any and all doubts relegated to the periphery. His latest gambit: a plan to literally blast a Tesla into orbit around Mars. Because, uh, that's what you do when you control both an automaker and an aerospace company:
To most observers, it looks like a stunt. To Adam Jonas, Morgan Stanley's beloved Musk expert and Tesla adherent, it's a portent of things to come. In his latest note, Jonas muses on what could be Tesla's final evolution from a mere car maker to a intergalactic force for good: a merger with Musk's other company, SpaceX:
We see the future of Tesla and SpaceX as potentially further intertwined, driven by technological, strategic and financial factors. In our view, investors should have a greater understanding of this relationship.
The gist of the note is that Tesla is finally facing all the obstacles that anyone who hasn't had a Muskian religious conversion has warned about for years: mounting competitive pressures, an unquenchable need for capital, an over-reliance on the messianic leadership of Lord Musk, who's clearly getting bored with Tesla anyway. There's no terrestrial solution to those concerns. Instead, Tesla longs will find their answers among the stars.
Why SpaceX? Its “competitive moat may be vastly superior to Tesla,” Jonas writes, noting that SpaceX could capture a significant chunk of the potentially $1.75 trillion global space economy. There's also the fact that there is “no apparent natural buyer for Tesla,” which is to say no executive with an intact frontal lobe would willingly take on an electric-car-solar-energy Frankenstein that burns through $1 billion a quarter.
Luckily, we have the “historical precedent” of the Tesla-SolarCity mashup, which, while “driven by a unique set of factors” (i.e. a cash crunch), still managed to demonstrate “the willingness of Tesla leadership to undertake strategic actions to consolidate its separate interests in the interest of both financial stability and technological overlap.”
Speaking of technological overlap, here was Musk from Tesla's latest earnings call:
There's cross-fertilization of knowledge from the rocket and spacecraft history to auto back and forth is -- I think has really been quite valuable. It's something that's been very valuable for me in thinking about how do we make mass optimized vehicles, because in space, mass optimization is extremely important. On the space side, it's helpful because it -- what really goes into high-volume manufacturing of something that has to be extremely reliable.
See? Mass optimization. Bada-bing bada-boom. Space cars.
Anyway, it would be tempting to interpret Jonas's note as a sort of grudging bear case wrapped in the guise of a bull case. But read closely and that inveterate Muskomania shines through clear as ever. Take the section about Tesla's “independence,” that is, it's insulation from competitors. In 2015 Jonas wrote that Tesla “may be uniquely positioned to dominate” its market; last year he claimed that its strengths let it “tap into larger and faster growing markets ahead of its competitors.” Now the picture isn't so rosy:
We have argued for some time that Tesla's addressable market of sustainable transport will attract fierce competition from some of the world's best capitalized tech firms with arguably superior access to capital, talent and business models that can monetize vehicle data and content opportunities, threatening the long-term independence of Tesla as a stand-alone entity.
Sounds pretty bearish! Similarly, it was rising competition that undergirded JPMorgan's recent call to short Tesla. But for JPM, the competition would come from the auto industry, which is filled with companies that happen to sell their cars for more than it costs to make them. For Jonas, however, the issue isn't GM or Ford. It's Google and Apple. See this note, from May:
We also expect the next 6 months could see the unfolding of any number of events from competitors (not referring to traditional auto manufacturers) that could potentially change the lens through which investors view Tesla’s long term sustainable moat.
That parenthetical is doing a lot of work. It's not traditional auto manufacturers that threaten Tesla's central business of manufacturing automobiles. It's tech. This is because Jonas's valuation isn't derived from Tesla's fundamentals, but from the dream of a Teslafied world.
It's this same dreamworld that provides grist for hope among the Jonases of the world, who have to continually negotiate the difficult reality that Elon Musk isn't very good at manufacturing cars with their certainty that he will indelibly alter human transportation.
We can only imagine how the inevitable Tesla-SpaceX tie-up will go...