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I've changed my mind: Why Apple Should buy Tesla

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Clprenz

Clprenz

Member
Jan 22, 2013
505
44
Bloomington, Illinois, United States
#1
While people pondered the idea of Apple buying Tesla over the years, I have quickly dismissed that idea. But, over the past few weeks I have realized that at this current point it may be a great time for both companies. For many simple reasons; Apple is looking to acquire many businesses to broaden their stance, Tesla is going to use all of their cash flow to expand for the next 10 years, and Tesla could use lots of cash to grow it's business.

After the last earnings call I realized that Tesla's CapEx is going to be very large for a very long time. Tesla needs hundreds, maybe thousands, of superchargers and hundreds of store and service centers. Elon is interested in Tesla's best interests and is only focused on growing the company rapidly. He needs billions of dollars in resources and shareholders are becoming impatient.

Before people jump to conclusions I want to make one thing very clear. I don't want Apple to be part of Tesla's day to day operations at all. At all. I'm not going to say the companies are similar, they aren't. One makes phones, popular ones but not necessarily the best. Tesla does make the best cars in the world, No competition at all.

Main points:
-Apple has roughly $155 billion in cash
-Tesla could probably sell for $36 billion (~$300 share)
-Musk could still Directly own his shares in the company*
-Apple would help supply addtional cash for Gigafactory and make plans for china factory with Foxconn
-Apple would help build more superchargers

Benefits for Apple:
Owning the next biggest automaker in the world

Benefits for Tesla:
Cash available all the time
Not worrying about margins that much and rapidly expanding production
Sell more cars
Faster Giga-factory
FoxConn in China
Money to get rid of dealers

Benefits for Tesla Owners:
More Superchargers (They could effectively build the network overnight)
More service centers
Cash to fight Dealers off

Shareholder benefits:
Getting a great return on investment: $300 a share
Knowing that Tesla will be in good hands and get to market faster
Dealer problems will disappear


*Tesla would take a cash infusion from Apple to buy back all public shares except Musk's and own the rest of the company privately

I wholely would support this, while I believe tesla will be the biggest automaker someday. I think having an owner like Apple, Tesla could do HUGE things. They could be just epic.

Done with rant, sorry for errors
 
#2
Thanks for your thoughts. Personally I think this would be a win-lose-lose proposition.

1. Win for Apple - Apple would gain a huge addressable market (ie., $2 trillion) and it could fuel their growth for the next 2 decades.

2. Lose for Tesla Motors - the company would no longer be under the vision/authority of Elon Musk but would be under the vision/authority of Tim Cook, which would be a big downgrade in my opinion. Sure, Tesla gains access to Apple's capital but Tesla currently has access to the capital of the public markets and could raise billions more if it wants. As long as Tesla continues to deliver, they will be able to raise tens of billions of dollars. In other words, Tesla doesn't need Apple's money... they can raise it themselves.

3. Lose for shareholders - if Tesla sold to Apple at $300/share I'd be severely disappointed. This is not a "win" for shareholders as many shareholders like myself are betting long-term on Tesla and are looking toward a share price much greater than $300/share.

In short, Tesla doesn't need anything from Apple... and I'd rather they stay away from Apple as Tesla is a much more bold, adventurous, visionary and compelling company IMO.
 
#4
DaveT said:
Thanks for your thoughts. Personally I think this would be a win-lose-lose proposition.

1. Win for Apple - Apple would gain a huge addressable market (ie., $2 trillion) and it could fuel their growth for the next 2 decades.

2. Lose for Tesla Motors - the company would no longer be under the vision/authority of Elon Musk but would be under the vision/authority of Tim Cook, which would be a big downgrade in my opinion. Sure, Tesla gains access to Apple's capital but Tesla currently has access to the capital of the public markets and could raise billions more if it wants. As long as Tesla continues to deliver, they will be able to raise tens of billions of dollars. In other words, Tesla doesn't need Apple's money... they can raise it themselves.

3. Lose for shareholders - if Tesla sold to Apple at $300/share I'd be severely disappointed. This is not a "win" for shareholders as many shareholders like myself are betting long-term on Tesla and are looking toward a share price much greater than $300/share.

In short, Tesla doesn't need anything from Apple... and I'd rather they stay away from Apple as Tesla is a much more bold, adventurous, visionary and compelling company IMO.
Click to expand...
I fully agree. The main reason I'm in Tesla is Elon Musk. I think Tesla is perfectly capable to execute if left on its own devices.
 
#5
Both of you are missing what my main point is! Apple is not buying Tesla to become part of Apple.
Tesla goes private with Apple and Elon as the only investors. Personally I don't think Tesla will turn a "real" profit until maybe 2021, because they are a growth company. Investors are dogs and they don't think like we do. I'm thinking what is best for the company not necessarily the shareholders.
 
#6
Clprenz said:
Both of you are missing what my main point is! Apple is not buying Tesla to become part of Apple.
Tesla goes private with Apple and Elon as the only investors. Personally I don't think Tesla will turn a "real" profit until maybe 2021, because they are a growth company. Investors are dogs and they don't think like we do. I'm thinking what is best for the company not necessarily the shareholders.
Click to expand...
Ok, I see what you're saying. But I don't see Apple taking such a big risk with their pile of cash. I'm also a selfish bastard who wants a much higher return than the $300.
 
#7
Familial Rhino said:
I'm also a selfish bastard who wants a much higher return than the $300.
Click to expand...

Me too. I'm in TSLA for the long run and expect a much greater return.

I understand its fun to speculate about Apple buying Tesla but I don't think it would be a good fit. A company can only grow so fast. Tesla has access to as much capital as it can effectively utilize. It doesn't need Apple to be a success and I don't believe it would become successful faster if owned by Apple.

I own a MacBook Air, an iPad, an AppleTV box, an iPhone, and AAPL stock. Have been a Mac user for 16 years. Obviously I am an Apple fan. I am also a Tesla fan. I don't see a logical connection between them.
 
Last edited:
#8
Clprenz said:
Both of you are missing what my main point is! Apple is not buying Tesla to become part of Apple.
Tesla goes private with Apple and Elon as the only investors. Personally I don't think Tesla will turn a "real" profit until maybe 2021, because they are a growth company. Investors are dogs and they don't think like we do. I'm thinking what is best for the company not necessarily the shareholders.
Click to expand...

Although it doesn't fit his principles, the only company I'd want buying Tesla would be Berkshire Hathaway. At least they'd be hands off with the management, and hold their share of the stock for a long time.

I'd be really happy to see Tesla become too big to acquire though. :biggrin:

Edit: I would also not be happy seeing some company give Tesla billions of dollars anytime soon. There's a difference between reckless growth and cancer. This is still a young company that needs to iron out many things, and that takes time. Adding money to make it go faster will not necessarily yield a better product.
 
#10
green1 said:
Just what we need, a company famous for horrible user interfaces and devices with half the functionality of their competitors at twice the cost. .. No thanks. If Apple bought Tesla I would no longer want one.
Click to expand...

Twice the cost, yes. But I have to wholly disagree with horrible user interfaces. I would argue that good user interface is one of the best things about Apple. In face, the Model S interface seems very Apple-esque.
 
#11
Clprenz said:
Both of you are missing what my main point is! Apple is not buying Tesla to become part of Apple.
Tesla goes private with Apple and Elon as the only investors. Personally I don't think Tesla will turn a "real" profit until maybe 2021, because they are a growth company. Investors are dogs and they don't think like we do. I'm thinking what is best for the company not necessarily the shareholders.
Click to expand...

Actually, I think you're missing something here. It appears you're assuming that Apple can buy Tesla, take it private, and yet give it a ton a capital to expand. This isn't how it works. If Apple purchases Tesla, it's brought into Apple's financial domain, and Apple needs to report revenue, expenses, earnings, etc. especially if they're going to give capital (ie., billions of dollars) for Tesla to expand. Think of it more like if Apple purchases Tesla, then Tesla becomes an independent subsidiary of Apple but Apple is required to report earnings/expenses/etc from the subsidiary.
 
#12
Apple won't buy Tesla. If anything Google would due to personal connections and their overall strategy-- don't be evil.

I do see Apple doing some kind of core trust/partnership for certain things, like raw materials (glass, aluminum, etc.) and sharing some manufacturing technologies (think of things like Apple's chamfered edgings on its phone)-- Elon is into cross pollination. I think this would be mighty cool to see on some things like a door handle or something inside.
 
#13
whether it's Apple, Google, Warren, or whoever, perhaps sometime around 2018-19 this would make sense...

I agree with the comments that for now Tesla has pretty much all the cash they can do wisely with as there's enough money to get up lots of SuperChargers, service centers and launch a convincing Gen III vehicle with Gigafactory #1. From there, an acquirer has proof of concept for a product with massive market share penetration begging to be tapped, Elon has completed his Tesla mission and heads to SpaceX, Tesla is ready to make use of much larger amounts of acquirer's capital, and us investor's take one for the team and accept a measly $700 (40% premium on 2019 TSLA price) to better serve the purpose for which Tesla was founded.
 
#14
The only "benefit" of Apple buying Tesla would be more leaks of upcoming Tesla products. Tim Cook vowed to "double down on secrecy" at Apple and has so far failed. You can already download 3D CAD schematics of iPhone 6 and 3D print your own mockup!

I'm joking. Sort of. Tim Cook is great at managing a business, but he's not yet proved to be a visionary.
 
#15
I don't see Apple buying Tesla. However, I can see both companies engaging in long term alliances that benefit both companies. Like Tesla did with Toyota supplying them batteries.
Here is why:
-Tesla will be a key player in cheaper lithium batteries. apple can use that for all their devices.
-Apple can help Tesla develop its car interface. Especially since it is very ipad like. Perhaps Apple radio would then be used instead of Slacker.

It will be interesting to see what happens in the next few years between the 2 companies.
 
#16
Clprenz said:
While people pondered the idea of Apple buying Tesla over the years, I have quickly dismissed that idea. But, over the past few weeks I have realized that at this current point it may be a great time for both companies. For many simple reasons; Apple is looking to acquire many businesses to broaden their stance, Tesla is going to use all of their cash flow to expand for the next 10 years, and Tesla could use lots of cash to grow it's business.

After the last earnings call I realized that Tesla's CapEx is going to be very large for a very long time. Tesla needs hundreds, maybe thousands, of superchargers and hundreds of store and service centers. Elon is interested in Tesla's best interests and is only focused on growing the company rapidly. He needs billions of dollars in resources and shareholders are becoming impatient.

Before people jump to conclusions I want to make one thing very clear. I don't want Apple to be part of Tesla's day to day operations at all. At all. I'm not going to say the companies are similar, they aren't. One makes phones, popular ones but not necessarily the best. Tesla does make the best cars in the world, No competition at all.

Main points:
-Apple has roughly $155 billion in cash
-Tesla could probably sell for $36 billion (~$300 share)
-Musk could still Directly own his shares in the company*
-Apple would help supply addtional cash for Gigafactory and make plans for china factory with Foxconn
-Apple would help build more superchargers

Benefits for Apple:
Owning the next biggest automaker in the world

Benefits for Tesla:
Cash available all the time
Not worrying about margins that much and rapidly expanding production
Sell more cars
Faster Giga-factory
FoxConn in China
Money to get rid of dealers

Benefits for Tesla Owners:
More Superchargers (They could effectively build the network overnight)
More service centers
Cash to fight Dealers off

Shareholder benefits:
Getting a great return on investment: $300 a share
Knowing that Tesla will be in good hands and get to market faster
Dealer problems will disappear


*Tesla would take a cash infusion from Apple to buy back all public shares except Musk's and own the rest of the company privately

I wholely would support this, while I believe tesla will be the biggest automaker someday. I think having an owner like Apple, Tesla could do HUGE things. They could be just epic.

Done with rant, sorry for errors
Click to expand...

You just need to replace apple with Google. Google has more advantages than Apple with Tesla.

Added Benefits to Google:
1. Bring their self diving car to the public faster. Regular auto makers are slow as molasses
2. More opportunities for the Google ecosystem.

Added benefits to Tesla
1. Google Street view cars can be Tesla's - easy to get real life high mileage tests for no cost.

Added Benefits to Tesla owners (compared to Apple)
1. More connectivity platforms will be supported. Apple would force degraded experiences on non iDevices (e.g. iTunes on Windows).
2. Technology will not be withheld for years (e.g. Apple with 3G. Apple with LTE, Apple with NFC)

The only Apple thing I own is stock. If Tesla became an Apple device, I'd have to think long and hard about buying a Gen III because I'd be worried about long term compatibility with everything else in my life, intentional degradation (by withholding features) of software on older cars etc. I will not be excited to want to jailbreak my car to get the desired end result.
 
#18
dalalsid said:
...

Added benefits to Tesla
1. Google Street view cars can be Tesla's - easy to get real life high mileage tests for no cost.

...
Click to expand...

How ironic - at the moment, TM seems to have some issues with Google Maps and the Hong Kong market. Not sure what it is, but something about licensing.

Imagine if Google had a stake in TSLA, it would almost be a requirement to have Google maps, at the moment TM has to fight for it.

We are hoping to get Google Maps, as advertised (and as in other markets), and not some (inferior?), unknown product, maybe not even with live traffic.
 
#19
The more I think about this more I thinks its possible, even smart. Google has shown great interest in the future of automobiles and clean energy. Not only this, but there are a likely large number of people that own Models S's at Google that understand what Tesla Motors is doing, and how capable Tesla is in accomplishing it's goals.

The time to buy TSLA is NOW, not when Tesla Motors gives the nation Gen 3. By that time TM's price tag will be more than what Google can easily afford.

We know that Elon will EVENTUALLY want less control over TM so that he can focus on SpaceX. What would be the most surefire way to ensure that TM would have a secure future? Google gives access to some of the best talent, the best money, and the best synergy more so than anyone else.

Sure he can hand it off to someone else that's been at the company for a while and keep it independant. But what if you got it acquired by Google, and made sure that the person you hand it off to gets the appropriate position at Google with the same authority over TM anyways?

I'm not an optimist when it comes to TSLA. But ****, I can really really see this happening.

It actually explains a lot of what happened post Q4. Why didn't we see a huge drop in institutional holdings of TSLA post Q4? Especially with a potentially shaky economy in the future? We should have seen a huge drop in institutional holdings as they reposition themselves into more value rather than growth. And if they didn't sell in Q4, they really should have sold in Q1, but no, instead we saw the least volume of trading after an ER ever.

Instead we've seen a rise in ownership. Its institutional speculation. They wouldn't bet on Tesla succeeding on it's own, that's way too risky, they'd bet on Tesla being bought.

Can anyone play devils advocate here? Why would Apple, or Google NOT want to be buying TSLA in the next year?
 
Last edited:
#20
Here is an argument I've come across for Google not to buy TSLA.

animusvoxx said:
Horizontal diversification is empirically proven to generally cause a company to lose value. It means conglomeration. It's usually a bad idea. It means additional risk, difficulty in managing diverse resources, massive logistical complexity, dilution of competitive advantage and and a whole host of other problems.Allow me to elaborate: as an investor, if i want to diversify my portfolio, all i need to do is purchase other assets that have little or no price/risk correlation to my existing portfolio.


Risk in financial markets, (so in market traded assets like shares) can be decomposed into two elements: Systematic risk (SR) and Unsystematic risk (USR). Systematic risk is risk that is inherent to any possible asset in the world - risk of disintegration of the US political and/or financial system, risk of a Chinese invasion of Russia, inflation, you name it - all of these things present an inherent and unavoidable risk to financial markets as a whole, and investors are compensated for this risk because it is totally unavoidable, if albeit unlikely.


Unsystematic risk, or firm or idiosyncratic risk, is risk borne by holding a specific asset - say, the risk that Bing supersedes Google, or that privacy complaints cause massive fines, or whatever - risk that is borne by holding only Google shares. Now, an easy way to avoid USR of Google is to diversify. Instead of your portfolio containing 100% GOOG, buy some GM, some mutual fund shares, whatever - any asset that is NOT tied to the success of Google. Since this USR can be so easily diversified, there is no reward for bearing it.


That last point is important, because it essentially nullifies your point on horizontal diversification.


If I hold Google, and I want diversification, I can buy GM, or Nissan, or Tesla shares. If Google buys Tesla shares to diversify, they pay a large premium, and then increase the risk of the new combined holding - if there is ever a problem with funding, say, or a product recall, now Tesla AND Google lose market value.


So two things have happened. First - Google and Tesla are now tied to each other - losses and gains do not offset each other as much as they did, and their combined risk may be higher than as individual assets. Second, the firms have spent a large amount of time and money trying to achieve diversification when you could have done it by calling your broker. So no investor is going to prefer TesGoog because less risky - it is possibly riskier.
Google knows software. They know about programming, about interfaces, about product ecosystems. They do not know much about car manufacturing. They have no existing managerial expertise in car manufacturing. Their shareholders, for the most part, will own stakes in competing car manufacturers and will resent the impact that the acquisition will have on their portfolio.
Their supply chains, human capital, and other assets - all of it is geared towards making high tech service products and services that, by entering strategic alliances with manufacturers and other parts of supply and distribution, will give them market dominance and thus economic profit.


I agree with apockill. My prediction is that Tesla will enter into a binding agreement to source all software services from Google - in-car navigation systems, GPS, entertainment and of course docking with Android products and other Google services, as well as a host of other tie-ins.
Click to expand...
 
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