Tesla-SpaceX Merger? & Steel Dynamics Goes Aluminum

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**Ann Berry** (0:26)
Alphabet, Google's parent company reported blowout earnings, but the stock is sinking. We explore investor concern over AI spend. Steel Dynamics, we answer one listener's question about the company that's forging metal and throwing off cash. And Tesla, my mixed earnings report, moved the company even closer to a merger with SpaceX. We have the latest. For Thursday, July 23rd, it's Brew Markets Daily and I'm Ann Berry.
More market details to come. But first, Tesla. If there's one message from last night's earnings, long awaited, it's that investors really do need to decide once and for all if they want to own this stock as a true AI bet. That's as the OG electric vehicle maker reported headline car sales were pretty encouraging. Tesla delivered just over 480,000 vehicles during the quarter, comfortably beating Wall Street expectations and marking its strongest delivery quarter since late last year. The sign that demand has stabilized, bringing a sigh of relief. Yet the share price has headed south as non-auto business drivers, pun intended, firmly take over the narrative. Research and development spends surgingly 50% from a year ago to around $2.4 billion, reflecting heavy investment in autonomous driving software, which does help that core auto business, but also really an AI computing infrastructure and of course, the Optimus Humanoid robot program. Then of course, there's the CapEx, which more than doubled from the previous quarter to hit around $5.8 billion.
All in all, generating negative free cash flow of about $1.1 billion.
This is a significant reversal from the positive free cash flow we saw in the prior quarter and the first negative cash flow print in around two years. Well, these non-car developments explain why Tesla stock price fell around 4% in after hours trading. And we saw early reactions from Wall Street reflecting a calm, but still some trepidation. Ratings largely held steady in terms of buy or sell or hold, but the price targets of Wall Street analysts did get nudged on down. Now, in amongst all of these reports, there was one nugget that caught my eye, and it was a throwaway comment toward the end of a Goldman Sachs analyst report released just before midnight last night. Yes, I'm such a nerd, I was up late trying to see these reports come in. Well, in this particular analyst research report, you have the usual list of upsides to target price, and they're included too in the list of risks laid out by this analyst was quote, a risk being key person risk and the internal control environment. So this is just my view, this is one person's opinion. A merger with Musk's other public company, that's of course SpaceX, is now seeming ever more likely.
There would still be key person risk to the combined company in the CEO, there's only one Elon Musk, but at least getting his executive bench under one roof gets top talent that's been trained in what I call the Elon Way, working together across complementary priorities all in one place. Now this work's really happening already in several ways. Back in March, Musk launched TerraFab, that's a $25 billion chip fabrication facility in Austin, that's a partnership between, you guessed it, Tesla and SpaceX AI.
So Tesla and SpaceX, look, just make it official. Unite, get real synergies, cut out duplicate back offices and duplicate public company expenses, streamline your combined R&D, get scale benefits from the totality of your CAPEX, remove conflict of interest issues, get the market relaxed, that everyone's going to focus in March in one direction, forwards as a single company. Well, looking to at what's going on at SpaceX's share price, that company may actually also welcome a near-term price catalyst, given that it now trades below its IPO price. And Tesla, just given what's been going on in its reaction to that earnings report, the shares there clearly could do with the pop. Now, it is such a glaringly obvious combination that on yesterday's earnings call, Musk, after highlighting TerraFab, said, We can't talk about combining companies on an earnings call. It's got to be done with the appropriate process. So appropriate process, we're watching out for you. Meanwhile, shares in Tesla down over 14% in this afternoon's trading. We're going to move on to other headlines from the day's trading session, kicking things off with earnings from tech giant Alphabet.