You cannot however sell only SpaceX shares from your ETF to cover your short's losses. So due to liquidity issues I wouldn't recommend your strategy.

What are you talking about? You don't need to touch anything about your ETF. You just have to short a single name on the side.

Also there is no liquidity issue, we're talking SP500 names here, you'll pay GC, which should be around 25bps as the other comment mentions.