A 30 percent share-price drop in less than a month has left Wall Street more split on Tesla than it has been in years. Last week's earnings report delivered record headline revenue alongside a profitability deterioration sharp enough to make the numbers look like two different companies, and the market has spent the days since trying to decide which one is real.
The numbers that broke the bull case
Operating margin collapsed more than 60 percent from a year earlier while free cash flow turned negative, and earnings per share missed expectations as capital spending surged. A large chunk of reported net income came from a one-off gain on Tesla's SpaceX stake rather than from selling cars or storing energy. Strip that out, along with fading regulatory credit income, and the underlying profitability shrinks dramatically for a stock still priced among the most expensive mega-caps in the market.
The spending shows no sign of slowing
Tesla's capital expenditure plans have ballooned to fund Optimus robots, Cybercabs, new factories and fresh AI initiatives. None have a clear near-term path to profitability, which makes the bear case straightforward: a core business under severe pressure, valued as if everything will go right, spending as if nothing can go wrong.
The merger thesis runs on speculation
On the earnings call Elon Musk acknowledged growing overlap with SpaceX, particularly around shared chip ambitions, but carefully avoided confirming formal merger talks. That was enough to send speculation into overdrive. Deepwater Asset Management's Gene Munster put the odds of an eventual combination at 90 percent. RBC's Tom Narayan went further, modeling a deal at $480 per Tesla share, a premium of more than 60 percent, that would leave existing shareholders owning more than half of a combined entity worth trillions.
SpaceX is not the backstop bulls want
The catch is that SpaceX's own valuation has been anything but stable. Its shares have fallen around 40 percent from their June peak as pre-IPO hype evaporates and the same AI spending fears hitting tech valuations take hold. A combination would merge two intensely capital-hungry businesses rather than pairing a cash generator with a growth project. If the merger vision comes to pass, today's margin questions become a footnote. Until then, they are the only thing that matters.