In what is an important 24 hours for the electric car manufacturer Tesla Motors Inc (NASDAQ:TSLA), during which it will announce its Q4 results for 2013, the market is ablaze with some exciting news for investors. On Sunday the media picked up very quickly on a story in the San Francisco Chronicle which reported on a meeting between senior executives from Apple Inc. (NASDAQ:AAPL) and Tesla.
While no reason has been officially given for the meeting, with Apple playing its cards characteristically close to its chest, many media outlets have been putting two and two together, and run with the story that Apple is seriously considering buying Tesla out. Adding fuel to the fire was the fact that the Apple exec, Adrian Perica, who met with Tesla’s CEO Elon Musk is involved with mergers and acquisitions at the corporation.
Tesla stock reacts
Regardless of the validity of this viewpoint, it didn’t do Tesla stock any harm. The electric car manufacturer traded much higher on the news that Apple were perhaps interested in an acquisition; a perhaps natural reaction. But the behavior of the market today suggests that this whole issue might be a bit of a red herring.
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Tesla stock lost all of its gains of the previous 24 hours, with the city apparently rather unimpressed by the claims that Apple is seriously interested in purchasing Tesla. Apple executives meet with the leading figures of other companies very regularly, and this seems to have been a well-timed release to the market ahead of its revenue figures.
While Apple Inc. (NASDAQ:AAPL) is infamously an extremely cash rich company, they’re not about to take extreme gambles with companies that would cost them a quite considerable undertaking in order to purchase. While many skeptics about Tesla’s future believe that the company is currently overvalued, and many investors have been tipping it as a potential short seller for quite some time, the solid plans that the company has might secure its future. But this doesn’t change the current situation.
Pricey market cap
Tesla Motors Inc (NASDAQ:TSLA)’s market cap of $25 billion means that an Apple buyout would be a quite considerable undertaking. Although they have nearly $160 billion in cash, it looks to be a risky investment for them in an area which they haven’t exactly specialized previously, for what could be a pretty minimal return. It is also known that a large chunk of Apple’s cash is held in overseas accounts in order to avoid taxation. Thus, there are logistical issues as well as investment considerations.
With Tesla’s stock heading in a generally upward direction, it seems unlikely that the company would be willing to sell cheap. With its share price having increased well over threefold in the last twelve months, Apple’s shareholders and investors might not be overly keen on such a purchase.
And another major reason may relate to, if you’ll pardon the pun, a core part of Apple’s business. If Apple bought out Tesla and effectively became a vehicle manufacturer then it’s quite possible that other major motor companies could push for deeper Android integration. This is hardly something that Apple would want for obvious reasons, and Tesla really doesn’t have a big enough share of the automotive industry to make this a worthwhile gamble for them. The company has done well to shift a couple of thousand of vehicles per month, but this is quite obviously a mere drop in the ocean of the overall car market.
Apple unlikely to change tack
The likes of Apple is on much safer ground striking deals with other tech companies to aid and help grow their central business model. In this regard, Google has picked up some rather surprising companies, and Apple itself completes acquisitions on a fairly regular basis. But such buyouts are almost without exception intended to provide specific functionality or features for their existing or forthcoming products. Moving into an entirely new industry, and buying out a relatively small player, while becoming a major manufacturer and executing an extremely rare outright acquisition would be very much foreign territory for Apple.
Although there is no doubt that Tesla Motors Inc (NASDAQ:TSLA) will have appreciated the link with Apple, it seems far more likely that the subject of conversation was Apple fulfilling some sort of supplier function for Tesla, or possibly vice-versa. A tech company of the size and diversity of Apple is always looking for the next big innovation, and it obviously makes sense for them to draw on the wisdom of leaders in other fields. Tesla is, at this point in time, the world’s most successful electric car manufacturer, and there is no doubt a lot that Apple can learn from them.
But though everyone loves big stories about Apple Inc. (NASDAQ:AAPL) , and the size of the corporation means that its horizons are extremely broad, don’t expect them to be splashing out on a Tesla acquisition any time soon.