Tesla’s ‘Musk Premium’ in Focus With SpaceX IPO on the Horizon

(Bloomberg) — (Updates stock price after Thursday’s open)

Elon Musk is selling investors a future of driverless cars, robot assistants and life on Mars. The problem for investors is there’s only one way to buy into his vision: Tesla Inc.’s stock.

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The electric-vehicle maker’s shares were up nearly 3% on Thursday. They hit their first record of the year on Tuesday amid gains of more than 20% over the last four weeks. Since tumbling to a low on April 8 during the height of panic over the Trump administration’s tariffs, the stock has soared almost 120%, putting it among the 20 best performers in the S&P 500 Index.

The rally is a testament to Wall Street’s faith in Musk’s artificial intelligence ambitions, particularly since Tesla’s core auto business is struggling. But it has also made Tesla shares extremely expensive. At 214 times earnings over the next 12 months, the stock has the second highest valuation in the S&P 500, trailing only Warner Bros Discovery Inc. and far ahead of number three, Palantir Technologies Inc., another high-flyer that trades at 178 times forward earnings as of Wednesday’s close.

“The valuation doesn’t make any sense,” said Vikram Rai, portfolio manager and macro trader at First New York, which sold its Tesla position earlier this year after Musk and President Donald Trump had a very public fallout on social media.

A Tesla representative didn’t reply to a request for comment.

With Musk’s SpaceX possibly going public next year, stock traders looking for “Elon exposure” will likely have another way to get it before long. The space exploration company is planning an insider share sale that would value it at $800 billion, making it the most expensive privately held business in the world. Its initial public offering would be the largest ever.

“A SpaceX IPO could lead to some selling pressure on Tesla shares,” said Dmitry Shlyapnikov, an analyst at Horizon Investments who works with portfolio managers. “There are investors that own Tesla for exposure to Elon’s ideas and not for the car company attached to the ticker.”

Of course, there’s another school of thought that a SpaceX public stock offering would shine a spotlight on Musk, giving Tesla another jolt of momentum.

“Historically, when one of Musk’s companies achieves a major milestone, it tends to lift sentiment for the others,” said Adam Sarhan, chief executive officer of 50 Park Investments. “A high-profile SpaceX IPO could attract a fresh wave of investors who are drawn to his innovation story — and that enthusiasm often spills over into Tesla.”

So far, Tesla’s stock price is getting a boost from the hype surrounding SpaceX, according to Bloomberg Intelligence analyst Steve Man. The missions of the two companies are interlinked, he said, describing a future where Tesla’s Optimus robots help with Musk’s ambition to colonize Mars, and SpaceX’s Starlink satellite system bolsters vehicle connectivity on Earth.

The companies also share lofty valuations. But Tesla skeptics question whether the company’s fundamentals can support those numbers. Its sales are slowing and profits are falling, while regulations rise and consumers spend less on cars.

“If you’ve been long Tesla stock, you’ve made money, there’s no denying it,” said Thomas Thornton, founder of Hedge Fund Telemetry, who has a small short position in Tesla. “It’s just bizarre to me because the fundamentals are so bad.”

‘Double-Down on Elon’

Optimists, on the other hand, point to Tesla’s growth prospects with opportunities in autonomous driving and robotaxis. Musk’s goal is to transform Tesla from an auto manufacturer to an artificial intelligence and robotics company. He wrote in a September X post that 80% of the firm’s profits will eventually come from robots.

“We believe Tesla’s earnings are going to be growing at 30% to 35% over the next two to three years based on the innovation that they have in the automotive segment,” said Brian Mulberry, client portfolio manager at Zacks Investment Management, which owns the company’s shares.

If Musk can pull that off, Tesla’s stock market valuation would make more sense. If he can’t, that’s where SpaceX comes in. Publicly traded shares of SpaceX would give investors the opportunity to own a piece of Musk’s vision without Tesla’s baggage.

“I think most investors will not want to double-down on Elon,” First New York’s Rai said. “That is a lot of risk to carry.”

Needham analyst Chris Pierce disagrees.

“We don’t see investors making an either/or choice, but instead backing both companies,” he said. “Investors that have made money in Tesla are likely to want to back another Musk venture.”

For now, the reality for investors is Tesla is the only way to bet on Musk’s vision. The immediate risk is the stock’s valuation, which is getting close to dangerous territory. On a technical level, the shares had been close to being considered overbought earlier this week. When they last reached that level in early October, the stock fell 10% over the next seven sessions.

“In the short term, it’s probably ready for a bit of a cooling off type of period after having that all-time high,” Mulberry said.

But to long-term Musk believers, the valuation may indeed be a short-term concern. Over the next few years, however, many see Tesla as a buy regardless of the price — possibly even more than SpaceX.

“I fully believe that at some point there will be a commercial mission to Mars, but probably not in my lifetime,” said Mulberry, who is 51 years old. “Does that mean I want to invest in that stock today? You’d have to have a really long view of that, whereas you could see the impact of robotaxis and robots probably in the next three to five years.”

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Earnings Due Thursday

–With assistance from Matt Turner, David Watkins and Nathaniel Popper.

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