NEW YORK (CNNMoney) - Tesla's stock has been a market darling this year and there is a lot of investor and consumer excitement about the company's new Model 3 electric car.
But one prominent Wall Street analyst thinks that Tesla and its increasingly stretched-for-time CEO Elon Musk should consider merging the company with his other big venture -- rocket company SpaceX.
Morgan Stanley's Adam Jonas said in a report Tuesday that Tesla's biggest challenge is fierce competition not just from traditional auto makers, but tech companies looking to step up their efforts in the driverless car market. Think Uber, Apple and Google.
"Tesla's addressable market of sustainable transport will attract fierce competition from some of the world's best capitalized tech firms with arguably superior access to capital, talent and business models that can monetize vehicle data and content opportunities," Jonas wrote.
Jonas added that this is "threatening the long-term independence of Tesla as a stand-alone entity."
Tesla is currently valued at about $50 billion, making it worth more than established auto giants Ford, Fiat Chrysler and Nissan and putting it within striking distance of surpassing GM and Honda.
But even though Tesla's stock is still up 40% in 2017, it has plunged more than 20% since it hit an all-time high near $390 a share in mid-September.
Concerns about production delays for the Model 3, which is meant to be Tesla's affordable, mass market car, are weighing on the company.
The fact that Tesla has added yet another new product to the mix -- a Semi truck -- also has investors nervous about Tesla biting off more than it can chew.
And there are lingering questions about whether Tesla's acquisition of SolarCity, a renewable energy company, co-founded by two of his cousins, of which Musk was chairman, will serve as yet another distraction for the still unprofitable Tesla.
That's where SpaceX comes in. SpaceX, which has backing from Musk as well as venture capital firm Draper Fisher Jurvetson, mutual fund giant Fidelity and Google owner Alphabet, is valued at $21.5 billion, according to research firm CB Insights.
That makes SpaceX the sixth-most valuable unicorn startup on the planet, albeit a company that's not as big as Tesla.
But Jonas thinks SpaceX has a brighter future than Tesla. He argues SpaceX could be worth as much as $121 billion if everything goes right for the company. The space travel business could be worth as much as $1.75 trillion by 2040, Jonas wrote.
And while SpaceX must contend with the Jeff Bezos-backed Blue Origin and United Launch Alliance -- a joint venture of Lockheed Martin and Boeing -- there is far less competition than there is in the automotive world.
"Our preliminary modeling of SpaceX reveals a launch business that could be in a highly dominant position, positioning the company to enter highly profitable markets, such as proprietary satellite broadband," Jonas wrote.
Jonas noted that Tesla and SpaceX already share knowledge about manufacturing -- particularly the use of aluminum casting --and that SpaceX employees have often been used to beta test Tesla cars. So a further alliance wouldn't be out of the question.
A merger of Tesla and SpaceX could also reassure Wall Street that Musk will remain as focused on his electric car business as he is on one day setting foot on Mars.
"Investors widely expect Elon Musk to, over time, devote increasing amounts of his time and talents to SpaceX, raising the very real question of who could replace him at Tesla. A combination of efforts between the two firms could address this important issue," Jonas wrote.
Jonas added that there seems to be a shift in how Musk has addressed the SpaceX-Tesla speculation in the past year.
During a conference call in August 2016, Musk said, "I don't think there's a strong product rationale to combine SpaceX and Tesla" and added that while the companies cooperate, "it's not enough that would justify merging them into one entity."
Fast forward to August of this year though and Musk said the "cross-fertilization of knowledge from the rocket and spacecraft history to auto...has really been quite valuable" and it's helped him think about how Tesla can better make mass-market vehicles.
Tesla and SpaceX were not immediately available for comment about the Morgan Stanley report.