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Barclays upgraded Tesla Inc. (NASDAQ:TSLA) to Overweight on Monday, raising its price target from $370 to $450 as it weighed a possible merger with SpaceX (NASDAQ:SPCX).

Beyond a potential merger premium, combining Elon Musk’s companies could accelerate Tesla’s transformation into an AI and autonomous-driving business, as carmakers compete to generate more revenue from software.

Analyst Dan Levy also cited improving prospects for Tesla’s vehicle and energy businesses.

Musk said during SpaceX’s Oct. 20 earnings call that both companies had formed independent committees to explore a combination, though neither has agreed to a deal.

The Race for Software Profits

In 2024, Tesla dropped its previous goal of selling 20 million vehicles annually by 2030. Musk now aims to reach approximately 5 million a year by the end of the decade, while increasingly looking to autonomous driving and software for growth.

Tesla reported 1.74 million active Full Self-Driving (FSD) customers in the third quarter, up 67% year over year.

Around half pay through monthly subscriptions, while the remainder purchased the software outright, CFO Vaibhav Taneja said during the earnings call.

Yet automobiles still generate roughly three-quarters of Tesla’s revenue.

Software is “the golden goose, because the margins are so high,” Dan Ives, a partner at Yorkville Ives, told the FT.

Tesla isn’t alone in chasing software profits. Ford and General Motors are turning hands-free driving into a subscription business, while Alphabet’s Waymo is already charging passengers for rides without anyone behind the wheel.

What SpaceX Could Bring to Tesla

For Musk, the biggest advantage of combining Tesla and SpaceX could be the freedom to move engineers, computing power and investment between businesses that increasingly depend on the same technologies.

Levy has argued that the real value would come from integrating the companies’ AI technologies, rather than cutting costs.

Their joint Terafab semiconductor project illustrates the opportunity. The proposed factory would supply chips to two very different customers: Tesla’s Cybercab robotaxis and Optimus robots, and SpaceX’s computing operations.

A merger could give Musk greater flexibility to decide where those resources go, rather than balancing the priorities of two separate companies.

But that flexibility comes with risks. Tesla and SpaceX already collaborate, and combining them could also expose Tesla shareholders to SpaceX’s enormous AI spending commitments.

On international Polymarket, traders put the probability of an official merger announcement at 15% by December 2026, rising to 63% by the end of 2027, with approximately $1.56 million in trading volume.

Musk has targeted volume chip production at Terafab in 2028, while acknowledging substantial uncertainty around the timetable.

In an exclusive Benzinga interview, Jay Goldberg, a semiconductor analyst at Seaport Research Partners, warned that commercially significant production might not arrive until 2030.

“I think he can do it faster than anyone else can. I don’t think he can do it fast,” Goldberg said.

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