Will Somebody Please Marry Elon Musk?!?! The Financial Case for Apple Buying Tesla
As we head in to the summer, it is angst-provoking that I—the biggest Elon Musk fanboy there is—need to start thinking about Tesla being sold. Elon’s brilliance and ambition have accomplished unthinkable things—but they have also caused him to over-lever and over-expand his company. Tesla needs Elon Musk. But Elon Musk needs help.
In general, people think either a big tech company or a big auto company would be the likely partner/acquirer. In terms of culture, philosophy, and geography, Tesla is much more a tech company than a car company. Apple probably makes the most sense here.
Strategically, Apple needs a new high-growth platform now that the smartphone industry is mature. They abandoned the idea of making cars a couple of years ago, but continue to flirt with tech related to it. And, a purchase of Tesla is not just a way to enter the fast-growing electric car market. It’s also a way to enter the high-growth green energy, energy storage, Internet of Things, and artificial intelligence markets. Markets where Tesla has leadership positions.
But what about the financial case? As of this moment, Tesla is valued at about $33.5 billion. Apple is valued at more than 25 times that and could nearly pay cash for the company. If you look at Tesla’s last <<disastrous>> quarter, the company lost $728 Million. Most of that loss could be covered by dramatically reducing Selling, General & Administrative (SGA, $703M), Research & Development (R&D, $340M) and interest expense ($157) million.
In joining the two companies, Tim Cook could reduce redundancies in SG&A and R&D between the two. It could retire the high interest debt that Tesla currently has to service and then scale the operations of Tesla appropriately to make the company economically sustainable. AND, perhaps best of all, it could tell Elon Musk “no” when it had to.
As with any marriage, sometimes the most valuable thing a partner can do is tell us the things we least want to hear. And Elon Musk needs that desperately.
