We heard again recently that Apple Inc. (NASDAQ:AAPL) actually met with Tesla Motors Inc (NASDAQ:TSLA) to discuss a merger between the two companies. This goes beyond the pure speculation which existed before, but it comes from an unnamed source, so it’s hard to say if it’s actually true. But what if Apple really did buy Tesla? Is it even possible and if so, what would the resulting company look like? It doesn’t hurt to dream—although it sounds like a nightmare to me.
Is an Apple – Tesla merger possible?
Perhaps the biggest battle Apple Inc. (NASDAQ:AAPL) has been facing is what to do with its massive cash hoard. The company maintains that it needs the extra money on hand to be flexible in an increasingly competitive market. Theoretically, it could blow a small chunk of its cash on buying Tesla Motors Inc (NASDAQ:TSLA). After all, Apple has roughly $160 billion in cash, so buying Tesla would be just pocket change to Apple. The company has an enterprise value of around $24.18 billion (at least according to Yahoo! Finance).
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However, a takeover is probably unlikely. Aside from Apple Inc. (NASDAQ:AAPL)’s desire to remain tight-fisted with its cash, the company is known to be a stickler when it comes to acquisition price, and with such a high valuation, Apple’s unlikely to bite. MarketWatch indicates that Tesla Motors Inc (NASDAQ:TSLA)’s enterprise value to EBITDA is -66.55, while its EV to sales is 14.27. Its total debt to EV is .12.
Although Apple Inc. (NASDAQ:AAPL) doesn’t disclose all of its mergers, the ones we do know about haven’t reached in the billions—or even topped $400 million. Jumping up to pay $24 billion for Tesla Motors Inc (NASDAQ:TSLA) would be quite a leap.
What would an Apple – Tesla merger look like?
Nonetheless, if Apple Inc (NASDAQ:AAPL) and Tesla Motors Inc (NASDAQ:TSLA) decided to ride off into the sunset together, there are a few things we can bet on. Currently, both of them are premium brands, so they have that in common. Apple isn’t a product for the masses, and Tesla isn’t either, although Tesla is working to change that. If Apple’s attempt at a low-cost iPhone is any indication, it probably wouldn’t be too thrilled about producing a mass market electric vehicle under the Tesla brand.
And with the efforts which have already presumably gone into the Generation III vehicle, what a waste of resources that would be. Apple might end up raising the price of the Generation III vehicle, thus dashing the automaker’s hopes of becoming a mass market automaker in order to keep margins as high as possible. It seems unlikely that this would be acceptable to CEO Elon Musk, who has said he would stay with Tesla Motors Inc (NASDAQ:TSLA) at least through the creation of that vehicle. In fact, he said in the past that he wouldn’t even consider a takeover of Tesla until after they created the Generation III>
How Apple, Tesla would benefit
Of course there’s no denying that Tesla Motors Inc (NASDAQ:TSLA) could really use Apple Inc. (NASDAQ:AAPL)’s cash to speed up expansion efforts and build its massive battery factory. So that aspect of a merger may look attractive to Tesla. And Apple, in turn, would have the new product category Wall Street has been so desperately craving.
Apple could partner with Tesla
Apple Inc. (NASDAQ:AAPL) has shown interest in cars with its iOS in the car, and if it owned Tesla, it could really get into the market in a much bigger way. But instead of a merger, what might be more likely would be a partnership between Apple and Tesla Motors Inc (NASDAQ:TSLA) to put iOS in the car inside of Tesla’s vehicles. If the closed door meeting between the two companies really did happen, what are the chances that what they were actually talking about was a partnership rather than an acquisition? Apple has already partnered with other automakers, so this could be a more likely story.
However, it really depends on what direction Tesla wants to go in. Would it choose Apple or Google Inc (NASDAQ:GOOG)’s Android to partner with? After all, Android is more universal in terms of market share around the globe, and Tesla and Google already have connections—so much so that it has been speculated that maybe Google would buy Tesla.