Is Tesla Stock a Buy Amid SpaceX Merger Rumors?

Key Insights

• Tesla stock has pulled back in the past few weeks.
• There are rumors that Tesla and SpaceX will merge.
• Technical analysis suggests that Tesla shares will rebound over time.

Tesla stock price has retreated in the past few weeks, moving from a high of $453 in May to $394 today. This retreat has coincided with the ongoing weakness in the equity market, with most technology companies being in the red.

Tesla’s weakness has led to speculation that it will merge with SpaceX as Elon Musk seeks to consolidate his empire. So, is TSLA a buy amid the ongoing rumors?

Traders Speculate that SpaceX Will Merge With Tesla

Some traders are speculating that Tesla will merge with SpaceX, and Wall Street analysts are mapping potential scenarios. In a recent note, a William Blair analyst has predicted that Tesla shares would jump if the merger happened. He pointed to a recent statement by Elon Musk who said that his companies were “trending towards convergence.”

In a statement on Wednesday, analysts at JP Morgan said that the discussion had become more practical, predicting that Musk may decide to use his large stakes in both companies to ink a combination. In addition to his stakes, Musk is the CEO and Chairman of the boards of the two companies, making the deal possible.

Traders on Polymarket believe that the merger is still a long shot, with the odds of a deal happening by December this year standing at 85%.

Elon Musk has been reshaping his empire over the past few months. For example, earlier this year, he announced the merger of SpaceX and xAI. Before that, he merged X, formerly known as Twitter, with xAI, the creator of Grok.

Most recently, he launched a major joint infrastructure project between Tesla and SpaceX. Named as the Terafab, the project is expected to cost over $119 billion. Musk aims that the project will produce substantial chips to power all his companies and sell to other firms.

Synergy Risks Remain

A merger between Tesla and SpaceX would likely be approved by policymakers because the two companies are not competitors. As such, there would be no anticompetition issues.

However, such a deal would face challenges over time due to its scale and limited synergy opportunities. SpaceX is in the satellite launch, broadband, AI, and social media industries. Tesla, on the other hand, is in the electric vehicle, renewable energy, and humanoid industries. A key challenge would be valuing the company given its vast size.

At the same time, the merger would be complicated by the fact that both companies are experiencing substantial cash burn.

In addition to the merger speculation, traders will now focus on the company’s upcoming earnings report. The report, which comes out on July 22nd, will provide more information about its performance.

A recent report showed that Tesla’s deliveries jumped last quarter. They rose to 480,000 after making 450,000 vehicles. These deliveries were much higher than what analysts were expecting. It also deployed 13.5 GWh of energy storage solutions.

Tesla Stock Price Prediction: Technical Analysis

The daily chart shows that Tesla shares have pulled back in the past few days, forming a descending channel. It is now in the middle of this channel and is along the 38.2% Fibonacci Retracement level.

TSLA dropped below the 50-day moving average, while the Percentage Price Oscillator (PPO) has moved below the zero line. On the positive side, there are signs that it has formed a bullish flag pattern.

Therefore, the stock will likely have a strong bullish breakout in the near term, possibly ahead of its earnings. If this happens, the initial target to watch will be at $453, the highest point in May. Soaring above that price will signal further gains, potentially to $498, its highest level in December last year.

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