Now would be the time for Apple to buy Tesla, and kick Musk out of the driver’s seat
The idea of a merger between Tesla Inc. and Apple Inc. has been floated for years as a way to get attention.
Now, it may not be so ridiculous.
Elon Musk has put an end to his idea to take Tesla TSLA, -1.10% private, but still has a tough road ahead to meet profitability and production projections, especially as Tesla handles expected investigations and lawsuits stemming from Musk’s ridiculous “funding secured” misadventure. Apple AAPL, +0.82% , meanwhile, has billions in cash to burn, manufacturing prowess, obvious interests in entering the car market and finding new form factors beyond the smartphone — and the pull to tell Musk his services are no longer needed.
For more: Tesla stock walloped after Musk axes go-private plan
Apple has been quietly investing in its own troubled self-driving car project, called Project Titan, according to multiple published reports, and continues to hire engineers from Tesla, a practice Musk once mocked by calling Apple ‘the Tesla graveyard.” Tesla was much more charitable last week when asked about a recent spate of Apple hires from its ranks, however.
Apple does have a lot more money than Tesla, which is running out of cash fast. It also has a chief executive in Tim Cook who knows about dealing with supply chains, mass manufacturing and all the other processes that sound easy when Musk describes them but are nearly impossible when Tesla attempts to perform them.
See also: Apple is worth $1 trillion because of Tim Cook
Musk has led Tesla to a precipice with the Model 3 — if the company can perfect the production process, he promises profitable operations perpetually. However, it is hard to believe anything that Musk says after the three weeks of absolute nonsense he just put investors through, to say nothing of his habit of failing to live up to promises.
On Monday, Loup Ventures analyst Gene Munster played down the theories that Apple might attempt some sort of deal, saying that if Tesla becomes profitable, the notion is just a fairy tale.
“If we’re wrong, and Tesla fails to reach profitability in the next year, Apple gains the upper hand and becomes the most likely investor or buyer,” Munster wrote in a blog post.
Wall Street has obvious, and warranted doubts, about Tesla turning into a sustainably profitable company under Musk’s watch. Tesla has promised profitability in both quarters of the second half, but the consensus on Wall Street is for Tesla to report a non-GAAP loss of 29 cents a share in the third quarter, and doubts about the sustainability of any profit are legion.
“The verdict is still out on whether Tesla can ultimately deliver 25% normalized gross margins on the Model 3, given that the company has only inconsistently delivered 25% gross margins on its $100K Model S and X offerings, and that high volume luxury competitors (i.e., BMW 3-series) have gross margins of around 30%,” wrote Bernstein Research analyst Toni Sacconaghi in a note earlier this month.
Opinion: Ignore the drama at Tesla and focus on the stock’s price zones to make money
Apple knows a little something about building a strong profit margin with a premium product sold through its own retail outlets, and could handle many of the other issues that will continue to beset Musk and Tesla. In his now legendary tearful interview with the New York Times, Musk admitted that Tesla has sought another executive to handle operations, and even said that “anyone who can do a better job” could have the CEO role.
It will be hard, if not impossible, for Tesla and Musk to recruit an executive of that strength. Apple, though, would be a big draw for such executives, especially if it convinced Musk to step aside.
While the deal make sense, there are obviously roadblocks. Apple has never spent more than $3 billion for an acquisition, and even with the recent decline in Tesla stock, the car maker is still worth nearly $55 billion. Musk owns about 20% of the company and wields control over its board, which includes his brother and other close comrades who seem to follow his lead, so he would seemingly have to buy in to the idea.
If Musk would allow such a sale, it could be a way to greatly improve Tesla’s manufacturing with some much-needed cash, and join two companies known for their fanatical customers. But in all likelihood, such a deal will indeed remain a fairy tale.
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