Executive Summary: Key Takeaways for Investors
– Tesla’s core automotive business shows irreversible decline, with 2025 vehicle deliveries falling 8.6% and the loss of the global battery-electric vehicle sales crown to BYD.
– Profitability is eroding rapidly; 2025 vehicle gross margins dropped to 14.5%, and net profit halved, with over half dependent on carbon credit sales facing regulatory extinction.
– Full Self-Driving (FSD) revenue remains negligible at 1% of total revenue, with per-vehicle contribution peaking below $600, failing to justify its role as a valuation pillar.
– Elon Musk’s $1 trillion compensation plan is at severe risk unless Tesla’s market cap is boosted, making a Tesla-SpaceX merger a strategic imperative to unlock stock options and mask weaknesses.
– Without intervention, Tesla’s valuation disconnect from peers like Apple and Nvidia could lead to a significant correction, as fundamentals no longer support a $1.5 trillion market cap.
The Precarious State of Tesla’s Automotive Empire
For years, Tesla Inc. symbolized the disruptive potential of electric vehicles, commanding investor enthusiasm and a premium valuation. However, the sheen is wearing off as delivery growth stalls and profitability contracts. The company now faces a existential question: can its existing business lines sustain a $1.5 trillion market capitalization, or must it seek a lifeline through a strategic merger? Speculation is mounting that a Tesla-SpaceX merger could be the answer, fundamentally reshaping the investment thesis for one of the world’s most watched stocks.
From Hypergrowth to Stagnation: A Delivery Downturn
Tesla’s delivery trajectory tells a story of rapid ascent followed by a troubling deceleration. In 2018, the company delivered 246,000 vehicles, a stunning 138% year-over-year increase. Growth remained in double digits through 2023 but has since reversed. 2024 marked the first annual decline, with deliveries dipping 1.1% to 1.789 million. The situation worsened in 2025, with deliveries falling 8.6% to 1.636 million. The fourth quarter of 2025 was particularly grim, with 418,000 deliveries representing a 15.6% drop.The high-end segment has collapsed. Model S and Model X deliveries totaled just 51,000 units in 2025, a 40.3% plunge, with Q4 seeing a 50.7% decline. Elon Musk’s subsequent announcement to discontinue these models and repurpose their production line for robot manufacturing was widely interpreted as an attempt to pivot attention away from a failed premium strategy. Concurrently, long-promised affordable models like the Model 2 or Model Q have faded from discussion.Tesla ceded its position as the global leader in battery-electric vehicle (BEV) sales to BYD in 2025. BYD sold 2.26 million pure electric vehicles, 37.9% more than Tesla. Including plug-in hybrids, BYD’s total new energy vehicle sales were 278% of Tesla’s, securing its fourth consecutive year of leadership. This loss of the volume crown undermines Tesla’s narrative of scalable growth, a core tenet of its valuation.
Eroding Profitability: The Cash Cow Loses Its Milk
A healthy automotive business typically exhibits strong gross margins, especially on mature, high-volume models. Tesla’s vehicle gross profit peaked at $17.6 billion in 2022 with a 26.2% margin. By 2025, it had fallen to $9.6 billion (approximately 682 billion RMB), with margins contracting to 14.5%. This decline occurred despite delivering 322,000 more vehicles in 2025 than in 2022, highlighting severe pricing pressure and cost inefficiencies.Comparisons with BYD are damning. For the first half of 2025, Tesla’s vehicle gross profit was $3.68 billion (约263 billion RMB) with a 12.8% margin. In the same period, BYD’s vehicle gross profit reached 530 billion RMB with a 20.4% margin—superior in both absolute terms and profitability. Tesla’s figures include $428 million in recognized deferred revenue from FSD packages. Excluding this, its H1 2025 vehicle gross margin would have been just 11.5%.The automotive cash cow is not just瘦了 (growing thin); it’s being outcompeted. This erosion directly impacts Tesla’s ability to fund ambitious, capital-intensive projects like robotaxis and humanoid robots, increasing its dependency on external valuation narratives such as a potential Tesla-SpaceX merger.
The Full Self-Driving Mirage: A Valuation Pillar Built on Sand
Investors have long priced Tesla as a tech company, not a carmaker, largely based on the potential of its Full Self-Driving software. However, a closer look at the financials reveals FSD’s contribution is marginal and its growth trajectory limited. This reality check is critical when assessing whether Tesla can stand alone or requires the bolstering effect of a Tesla-SpaceX merger.
Minimal Revenue in the Grand Scheme
FSD revenue, recognized from deferred accounts, has remained a tiny fraction of total sales. In 2019, it was $300 million, or 1.5% of vehicle revenue. By 2025, it reached $956 million, still just 1.5% of vehicle revenue and a mere 1% of Tesla’s total revenue. For a company touted as an AI and software leader, deriving 99% of its revenue from hardware sales undermines that narrative. The contribution is so small it likely fails to cover its own research and development costs. In 2025, Tesla spent $4.63 billion on R&D. If even one-third of that was allocated to autonomous driving (approximately $1.54 billion), it would exceed the entire FSD revenue for the year.
The Subscription Pivot and Ceiling on Per-Vehicle Value
Tesla’s shift to a subscription-only model for FSD, effective February 14, 2026, underscores the challenge. Previously, about 70% of its 1.1 million paying users opted for the $8,000 buyout, providing Tesla with upfront cash and controlled revenue recognition. The move to a $99 monthly fee aims to lower the entry barrier and boost user adoption, which is crucial for data collection and meeting a specific metric in Musk’s compensation plan: achieving 10 million daily active FSD users for three consecutive months.However, historical data suggests limited upside. Tesla discloses “future recognizable revenue” related to FSD based on past deliveries. Analysis shows the per-vehicle contribution has plummeted:
– 2020: $2,514 per vehicle (based on 2021 recognizable revenue of $1.13 billion from 2020’s 450,000 deliveries).
– 2021: $1,028 per vehicle.
– 2023: $512 per vehicle.
– 2024: $469 per vehicle.
– 2025: $553 per vehicle (based on 2026 recognizable revenue of $904 million from 2025’s 1.636 million deliveries).With the subscription model, achieving an average revenue per user (ARPU) that significantly exceeds these levels will be difficult, especially as competition intensifies. BYD, for instance, already has 2.6 million users connected to its intelligent driving system, uploading 160 million kilometers of real driving data daily—a scale Tesla currently lacks.
Regulatory Headwinds and the Vanishing Profit Buffer
Beyond operational challenges, Tesla faces external policy shifts that threaten a key earnings component. For years, the company has profited from selling regulatory carbon credits to legacy automakers, but this revenue stream is now in jeopardy.
The Carbon Credit Crutch
In 2025, Tesla generated $1.99 billion from the sale of regulatory credits. This accounted for a staggering 51.7% of its net income of $3.86 billion. This income is essentially pure profit, but it is non-operational and subject to regulatory whims. The Biden administration’s supportive policies have given way to changes under the Trump presidency. The passage of the “Big and Beautiful Act” in July 2025 relieved traditional automakers from stringent emissions penalties, reducing or eliminating their need to purchase credits from Tesla. California’s aggressive zero-emission vehicle mandates have also been paused.
Net Profit Collapse and the Path to Potential Losses
With the carbon credit cliff approaching, Tesla’s bottom line is exposed. Net income has fallen precipitously from a high of $14.97 billion in 2023 to $3.86 billion in 2025—a 74.3% drop. The trend is clear:
– 2022: $12.59 billion net income (15.5% margin).
– 2023: $14.97 billion.
– 2024: $7.15 billion (7.3% margin).
– 2025: $3.86 billion (4.1% margin).Without the credit sales, which could dwindle to zero by the end of 2026, and with massive ongoing investments in Robotaxi and Optimus robotics—projects that may not generate meaningful revenue for a decade—Tesla could easily slip into losses. This stark reality makes the prospect of a Tesla-SpaceX merger not just attractive but potentially necessary to maintain investor confidence during a transition period.
The SpaceX Gambit: Strategic Rationale for a Merger
Against this backdrop of fundamental deterioration, the logic behind merging SpaceX with Tesla becomes compelling. It represents a strategic maneuver to redefine the company’s growth narrative and directly address the valuation crisis.
Addressing the Core Valuation Gap
Tesla’s 2025 annual report implicitly acknowledges that its current business portfolio—automotive, FSD, and robotics—cannot support a $1.5 trillion market cap. The proposed compensation plan for Elon Musk, approved by shareholders in November 2025, ties massive stock option grants to market capitalization milestones. If Tesla’s stock falters due to poor performance, Musk stands to lose a compensation package worth approximately $1 trillion. Even a successful SpaceX IPO might not compensate for that loss.In contrast, a merged entity incorporating SpaceX’s stellar growth and space exploration prospects could propel the combined company’s valuation beyond $2 trillion. This would allow Musk to unlock 35.31 million Tesla stock options, worth roughly 1 trillion RMB. Thus, from the perspective of Musk’s personal financial interests, engineering a Tesla-SpaceX merger is a rational, high-priority objective. It would effectively use SpaceX’s “俊” (handsomeness) to cover Tesla’s “百丑” (hundred ugliness), as the Chinese idiom goes.
Beyond Automotive: Creating a Conglomerate of the Future
SpaceX is widely anticipated to pursue an initial public offering in 2026, with underwriters, fundraising targets, and valuations already the subject of market chatter. A merger pre-IPO would allow Tesla shareholders to capture that value directly. More importantly, it would transform Tesla from a challenged automaker into a diversified frontier technology leader. Concepts like the Optimus humanoid robot could be rhetorically tied to SpaceX’s lunar and Martian colonization ambitions, creating a more compelling and less easily quantified growth story for investors.This strategic rebranding is crucial. Tesla’s other future pillars—Robotaxi and Optimus—are in their infancy. Robotaxi is a toddler requiring years of nurturing; Optimus is not even an infant, with fundamental technical and application challenges unresolved. They cannot contribute to earnings in the foreseeable future. A Tesla-SpaceX merger provides immediate substance to the “future tech” narrative that Tesla’s standalone operations currently lack.
Tesla Among Titans: A Valuation Disconnect in the Making
Placing Tesla’s performance alongside its peers in the “Magnificent Seven” cohort reveals a stark disconnect between its valuation and fundamentals, heightening the risk of a severe market correction.
The Profitability Chasm
In 2025, Apple, Microsoft, and Alphabet each reported net profits exceeding $100 billion. Meta Platforms Inc. earned $60.5 billion. Nvidia and BYD, reporting for the first three quarters, earned $77.1 billion and $56.5 billion, respectively. Tesla’s $3.86 billion in net profit—half of which came from soon-to-vanish regulatory credits—pales in comparison. The analogy used in the source material is apt: standing among these giants, Tesla has “有鸡立鹤群的既视感” (the visual effect of a chicken standing among cranes).
Implications for Investors and the Market
While all major tech stocks trade at elevated valuations, the others have massive, resilient earnings streams to justify them. Tesla does not. Analysts from UBS, Morgan Stanley, and others have already downgraded the stock and slashed price targets. If the core business continues to deteriorate and futuristic projects burn cash, a significant de-rating is inevitable. The Tesla-SpaceX merger speculation is, therefore, a potential circuit breaker for this downward pressure. It offers a new variable that could reset valuation models and sustain the premium that has long been attached to Musk’s vision.
Synthesizing the Path Forward for Global Investors
The evidence is conclusive: Tesla’s standalone trajectory is unsustainable for its current market valuation. Declining sales, eroding margins, an inconsequential FSD business, and the loss of regulatory credit income paint a picture of a company in transition—or crisis. Elon Musk’s personal financial incentives are perfectly aligned with finding a solution that reinflates the stock price. A Tesla-SpaceX merger emerges as the most coherent strategy to achieve this. It would provide an immediate valuation boost, secure Musk’s historic compensation, and buy time for Tesla’s long-shot projects to mature.For institutional investors and fund managers engaged in Chinese and global equity markets, the imperative is clear. Monitor any official announcements regarding SpaceX’s IPO plans and potential merger discussions with extreme vigilance. The investment thesis for Tesla is no longer just about electric vehicle volumes or software updates; it is increasingly about corporate strategy and financial engineering. The potential Tesla-SpaceX merger is not merely a rumor; it is a logical outcome of the pressures facing Tesla and the ambitions of its leader. Prudent investors should factor this high-probability strategic shift into their risk assessments and valuation models, recognizing that the future of one of the world’s most iconic companies may indeed hinge on the fortunes of another.