SpaceX on the rise while Tesla rides the rollercoaster
Elon Musk has recently solidified his status as the wealthiest individual in history, with Tesla (TSLA) emerging as his dominant source of wealth. Tesla's market capitalization reached an astounding peak of nearly $1.5 trillion, underscoring its monumental growth. Meanwhile, SpaceX, another Musk-led venture, boasts a market valuation of $350 billion (of which Musk owns 40%). Analysts suggest that SpaceX could eventually surpass Tesla in value, highlighting its transformative potential in the aerospace and telecommunications industries. The story is even more compelling when viewed in the context of what Starlink and global internet can bring to SpaceX.
Tesla’s Unprecedented Growth and Volatility
Tesla's stock performance has been both remarkable and volatile. From January 1 to April 22, 2024, Tesla stock was down 43%. However, between April 22 and December 17, 2024, the stock surged 238% from its lowest point. Following its peak in December, Tesla's value experienced a 21% decline by January 2, 2025, including a sharp 6% drop on that day alone.
This rollercoaster volatility prompts critical questions: At what point does a stock become overvalued? Did Tesla genuinely gain $800 billion (from $700 billion on October 23 to $1.5 trillion on December 17) in market capitalization due to intrinsic growth, or was this surge driven by speculative enthusiasm?
Tesla Stock on a Rollercoaster Ride
Diverging Fortunes: Tesla vs. SpaceX
Investors often find themselves debating the relative merits of Tesla and SpaceX. While both companies represent groundbreaking innovation, they function in fundamentally different ways. Tesla's public status subjects it to daily price fluctuations, with its stock responding sharply to market sentiment and news cycles. In contrast, SpaceX remains a private entity, with its valuation adjusted only periodically, typically through tender offers.
These dynamics raise an interesting possibility: Can investors favor Musk's vision yet prefer one stock over the other? Is it conceivable for Tesla to experience a downturn while SpaceX continues its upward trajectory?
Investing in Tesla: Opportunities and Risks
For investors, Tesla offers a range of accessible options. Its public status allows individuals to buy or sell shares seamlessly through major trading platforms. Additionally, leveraged funds enable investors to amplify their exposure to Tesla, albeit at a higher risk. While such funds can enhance returns during a bull market, they pose significant downside risks in periods of decline. Concentrated exposure to Tesla can become a performance drag, particularly for funds with outsized positions in the stock.
Tesla-Focused Funds
The table below highlights funds with a Tesla weighting of 15% or more, showcasing their exposure and associated risks. Among these, the Baron Partners Fund (BPRTX) stands out with a staggering 44% of its total assets under management (AUM) invested in Tesla—more than double the weight of the next closest non-leveraged, non-international fund. Furthermore, this concentration also comes at a higher cost: the Baron Partners Fund charges the highest fees in the Tesla peer group, with an expense ratio of 2.25%.
Mutual Funds and ETFs with Concentration in Tesla Stock
Comparing Tesla and SpaceX
In contrast to the volatile, rollercoaster ride of publicly traded Tesla stock, SpaceX’s valuation has been appreciating in a step function, as shown in the exhibit below. The liquidity options differ significantly between private and public equities, yet the sharp contrast in movement demonstrates the inherent risks of both equity positions. Notably, the step function can both rise in large steps or drop in large steps, such as during the 2021 or 2022 market correction. Investors need to be wary of the speed at which corrections might occur.
SpaceX Stock Valuation (private company) Moves in a Periodic Step Function
While both Tesla and SpaceX have appreciated strongly since inception, the assumption that they will continue to grow at the same historical rate is unrealistic. Few, if any, historical precedents show an $800 billion appreciation in less than six weeks, as seen with Tesla. Furthermore, recent evidence of a slowdown in Tesla’s EV shipments suggests a potential reversal or, at minimum, a deceleration in growth. By contrast, no such negative news has yet emerged from SpaceX. This could indicate divergent long-term prospects for the two companies but it also might suggest that SpaceX is due for a growth correction.
Investment Diversification
As the table shows below, the extreme overweight in Tesla seen with some funds is not mirrored in SpaceX investments. The list includes one open-end mutual fund, one closed-end mutual fund, and one ETF that hold SpaceX stock. Investment options with significant redemption restrictions (such as Ark Ventures) were excluded from consideration. While the options are few, noticeable differences exist among the three funds, including SpaceX weightings (ranging from 3.4% to approximately 10%), expense ratios (from 0.75% to 5.33%), and initial investment durations.
Notably, the Baron Partners Fund (BPRTX) appears on both lists, with its 44% weight in Tesla contributing to higher volatility compared to other funds. Only an investor’s risk tolerance, preferences, and guidance from experienced advisors will determine the appropriateness of these investments.
ETF and Closed/Open End Mutual Funds with SpaceX Stock Exposure
Key Takeaways
Elon Musk's ventures continue to captivate investors and reshape industries, but their divergent trajectories warrant careful consideration. While Tesla's daily liquidity offers immediate opportunities, its volatility underscores the need for a balanced approach. On the other hand, SpaceX presents a longer-term, potentially less reactive investment narrative. But it is still an unproven investment in the public markets and may hold unforeseen risks as a private entity. Understanding these nuances will be critical for investors aiming to capitalize on Musk’s vision while mitigating risks.