Tesla Stock Slips 1.4% a Day After SpaceX Merger Speculation Lifted Shares 4% to Close Above $400 Mark

Tesla Inc. shares slipped on Wednesday, giving back part of Tuesday's gain, which was driven by speculation about a possible merger with Elon Musk's rocket company, SpaceX.

Tesla shares fell $5.51, or 1.35%, to $401.94 in late-morning trading on the Nasdaq at 11:14 a.m. EDT. The stock remained above the $400 level.

On Tuesday, Tesla shares rose 4% to close at $407.46.

Merger talk

Investor interest has been fueled by the possibility of combining Tesla with SpaceX, Musk's privately held space and satellite company.

Both companies have formed special committees of independent directors to consider a possible deal, which Musk said was "at the request of shareholders." Musk has said he supports the idea.

"Do I think it would be a good idea? Yes," Musk said, according to reports.

But he cautioned that "the special committees have not reached agreement on the terms of any transaction." He also noted that a deal would need approval from 50% of all Tesla shares, which he called "quite a high hurdle."

SpaceX is the larger of the two companies, with a valuation of about $1.96 trillion, compared with Tesla's market value of roughly $1.6 trillion.

Analysts weigh in

Barclays upgraded Tesla on Monday, calling a potential merger a key part of the bull case for the stock. ARK Invest, Cathie Wood's investment firm, reiterated its long-term price target of $4,400, based largely on its forecast for Tesla's robotaxi business.

JPMorgan analysts have estimated that a merger premium could imply a value of about $500 per Tesla share, though no offer has been made.

Not everyone is convinced. New York University professor Scott Galloway called the idea a "real merger with a fake premise," arguing that SpaceX's growth could be used to prop up Tesla's valuation.

Weak earnings

The merger speculation has helped Tesla's stock hold up despite weak financial results. In its third-quarter report last week, Tesla posted GAAP operating income of $718 million. Its results included a $142 million mark-to-market loss on its holding in SpaceX.

Tesla's stock trades at a very high valuation, more than 400 times trailing earnings, reflecting investor bets on future businesses such as robotaxis and humanoid robots rather than its current car sales.

Tesla's chief financial officer said on the earnings call that robotaxi would become "a significant part of our revenue and profitability in '27."

The company has started operating driverless Cybercab vehicles in Austin, Texas, and has 1.74 million active subscribers to its Full Self-Driving software.

Car sales pressure

Tesla's core electric vehicle business has faced pressure from rising competition, particularly from Chinese automakers, and slowing EV demand in some markets.

Musk's recent comments that humanoid robots could eventually require more memory than any other application also drew attention this week, highlighting his focus on Tesla's Optimus robot program.

What to watch

Investors are watching for any developments in the potential SpaceX merger, including whether the special committees agree on terms. They will also watch Tesla's progress in expanding its robotaxi service and the outlook for vehicle deliveries.

The Federal Reserve's interest rate decision on Wednesday afternoon could also affect high-valuation growth stocks like Tesla.