A SpaceX-Tesla union would mark the largest merger of all time. But does the math work?

Elon Musk may be about to use Space X’s soaring valuation as a lifeline for Tesla—and in doing so, create a combined giant that potentially loses money. A new Fortune analysis by colleague Shawn Tully lays out the math behind a reported potential Space X-Tesla merger. The combined entity would carry a $3.4 trillion valuation with Space X at an anticipated $1.75 trillion against Tesla’s $1.65 trillion market cap. This would make it nearly three times the size of the largest merger ever completed. Tully writes: “Capitalizing on the incredible buzz surrounding the pending SpaceX IPO as a strategy for rescuing stricken Tesla makes perfect sense for Elon Musk. At an expected market cap of $1.75 trillion, SpaceX stock looks vastly overpriced—an IPO prominent analysts are saying they’d avoid. So Musk could marshal its inflated shares as currency to pay big for Tesla, even making the deal at its current market cap, a number that’s also over the top based on any conventional metric.” However, the financial logic is where it gets uncomfortable, according to Tully. For example, SpaceX would issue new shares equivalent to 94% of its current count to absorb Tesla, doubling its share base to 8 billion. But Tesla’s trailing GAAP earnings have collapsed from $15 billion in 2023 to $3.9 billion today and core operating earnings, stripped of regulatory credits and Bitcoin gains, are just $2.3 billion. On top of that, the cash flow picture is even more alarming, he writes. For CFOs, treasurers, and capital-markets professionals, the situation raises a sharp question: what does it mean when the world’s most watched deal is designed to solve one overvaluation problem by potentially creating a larger one?You can read Tully’s full story here. Sheryl Estradasheryl.estrada@fortune.com This story was originally featured on Fortune.com