Apple and Tesla, is the iPhone maker really planning to buy the car company?

Maybe Apple and Tesla is a good, even a perfect match. Apple has got lots of money; but seems to have given up on entering the auto market, and just maybe is running out of ideas in other areas.

Tesla has got lots of ideas, but has a seemingly unquenchable thirst for money. It also has this guy called Elon Musk. For those reasons, a possible merger between Apple and Tesla has been mooted by analysts many times.

Then again, analysts moot a lot. Not so long ago a theory did the rounds that Apple was preparing to make a bid for Disney — but that particular piece of speculation seems to have disappeared in fairy dust.

But now Saxo Capital Markets has speculated that Apple may be preparing a bid for Tesla.

It projects an offer of $520 a share, which is $100 a share more than Elon Musk suggested had been secured to take Tesla private in his infamous tweet earlier this year.

At the time of writing, the Tesla share price is at $355, which is up 66 per cent since the beginning of October.

Saxo said that the offer would set Apple back around $86 billion, which it could fund from just 12-months of cash flow. In short, Apple could fund the deal without barely blinking, restoring its $237 billion cash hoard in a year.

Saxo  said that such as acquisition would make “perfect sense”. What Apple and Tesla have in common is focus on both design and engineering in hardware. And that an Apple Tesla acquisition would provide Tesla with the funds it needs to build new gigafactories in Europe and China and ultimately “dominate the future of the car industry.”

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It should be pointed out that Saxo is not necessarily suggesting it thinks such an offer is likely to happen, rather it’s an outlier prediction forming part of its Outrageous Predictions for 2019.

However, in the view of Information Age, the markets have underestimated Tesla’s potential for several reasons:

  • Its expertise in AI. Elon Musk himself once said that Tesla’s expertise in AI gave it a massive advantage over other auto companies and said that he believed the company was capable of realising a $700 billion market cap — although he said: “I want to preface this by saying I might be completely deluded.”
  • It’s expertise in lithium ion batteries. Energy storage will be a vital weapon in the war against climate change. It is far from proven that lithium ion is the technology that will eventually triumph in this area, but what is clear is that Tesla is the leading energy storage company in the world.
    Electric cars are less complex than traditional cars. A point that critics missed when discussing Tesla’s production targets, is that electric cars have less moving parts than internal combustion engine cars. Tesla had forecast that it would be making 5,000 Tesla 3 vehicles a week by the end of March 2018.
  • Many auto-industry experts said that this was impossible. Tesla missed the target, but did confound critics by hitting that target in its second quarter. Critics said it would not be able to repeat this, yet in Q3 of this year, not only did Tesla make 10,000 Model 3 drive units a week, it made a profit in the process.

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Even so, Tesla’s current market cap of $63 billion does seem extraordinary for a company that makes a fraction of the number of units built by other auto companies with lower market cap. GM, for example, makes around 10 million cars a year, yet its market cap is $48.58 billion.

In order for Tesla to justify its current market cap, it will either need to ramp up production to much higher levels, or become the premier battery and AI partner to other auto companies.

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If it goes down the former route, it will surely need a lot more money, and Apple may be one of the few companies in the world with sufficiently big pockets. An Apple Tesla merger may be an outrageous prediction, but the odds of it occurring are not outrageously low.

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Michael Baxter

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