A potential SpaceX–Tesla merger could reshape ETF exposure to Elon Musk’s businesses, potentially boosting the combined company’s weighting in major indexes. However, acquisition costs and shareholder dilution could complicate the investment case.
Joel Shulman, founder and chief investment officer of ERShares, believes a SpaceX (NASDAQ:SPCX)-led acquisition of Tesla, Inc (NASDAQ:TSLA) is increasingly plausible.
“I believe a merger is increasingly plausible, with SpaceX more likely to acquire Tesla rather than the reverse,” Shulman told Benzinga. He believes SpaceX’s growth trajectory and strategic positioning make it the logical acquirer.
“My greatest concern is the price SpaceX would have to pay to acquire Tesla,” Shulman told Benzinga, noting that Tesla’s elevated valuation multiples and the additional premium its shareholders might demand could transfer substantial value from existing SpaceX shareholders.
Could Index ETFs Become Major Beneficiaries?
A combined company’s market capitalization could make it a significant holding across market-cap-weighted portfolios, depending on its public float, listing structure and index eligibility.
“Perhaps the greatest advantage of a merger would be the substantially increased market capitalization and potential weighting of the combined company in major passive indices,” Shulman said.
A higher index weighting could translate into additional institutional demand as ETFs tracking the affected benchmarks adjust their portfolios. Funds tracking eligible benchmarks, including the Invesco QQQ Trust (NASDAQ:QQQ) and Invesco NASDAQ 100 ETF (NASDAQ:QQQM), could adjust their holdings if the combined entity’s index weight changed.
However, the scale of potential buying would depend on the combined company’s eligible public float, index eligibility and the assets tracking each benchmark.
Shulman believes the implications could extend beyond the initial portfolio adjustments.
“Increased passive-index ownership could create substantial institutional demand and a more stable, long-term shareholder base,” he said. “This could provide greater stability and valuation support over time, subject to index eligibility and public-float requirements.”
Shulman also highlighted the potential benefit of combining SpaceX’s satellite communications and launch businesses with Tesla’s automotive, energy and robotics operations.
“Starlink’s recurring revenues could provide an attractive complement to Tesla’s more cyclical businesses,” Shulman said, while noting that the combined enterprise would remain capital-intensive.
However, a larger market capitalization would not automatically translate into substantial ETF inflows. Index methodologies, free-float requirements and the amount of assets tracking each benchmark would determine the potential demand.
Nor would passive buying necessarily mean the merger created shareholder value. Index-tracking funds generally adjust holdings to reflect benchmark changes rather than independently assess whether a stock is attractively valued.
Dilution Could Offset the Benefits
A stock-for-stock acquisition could increase SpaceX’s share count, reducing existing shareholders’ ownership percentage in the combined company.
According to Shulman, “Preserving Musk’s control while protecting shareholder value would be central to the transaction structure.” He identified free cash flow per share and long-term earnings growth as key measures of success.
The acquisition premium would also matter. If SpaceX paid too much for Tesla, existing SpaceX shareholders could surrender part of their potential long-term gains to Tesla shareholders, even if the combined business achieved a higher headline valuation.
“Tesla already trades at historically elevated valuation multiples, and its shareholders would likely demand an additional acquisition premium,” Shulman noted.
Potential synergies across artificial intelligence, robotics, autonomous driving and satellite communications could strengthen the business case. However, Shulman cautioned that technological synergies might take years to translate into measurable earnings.
What ETF Investors Should Watch
The ultimate impact on ETFs would depend on the transaction valuation, exchange ratio and market reaction, Shulman said.
The ERShares Private-Public Crossover ETF (NASDAQ:XOVR) maintains approximately 18%–20% exposure to SpaceX, according to Shulman, making the deal particularly relevant to the fund.
“We are extremely bullish on SpaceX as a standalone investment and view it as a multidecade holding, much like our investment in NVIDIA over the past 21 years,” he said.
For ETF investors, the central question is whether a merger would create lasting shareholder value or simply a larger company that passive funds may be required to own.
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