I’ve been hard on Tesla Motors Inc (NASDAQ:TSLA). In my opinion, Tesla is a company built on one crony capitalist deal after another, loaded up on government subsidies, drunk on great PR and sporting a $40 billion valuation — which makes even less sense than the $32 billion it was worth when I wrote about TSLA stock a few weeks ago.
But Tesla does make a whiz-bang vehicle.
So as an investor, there is no way I would buy TSLA stock. I might trade it on either side, but the risk of owning the actual stock is too ridiculous to even contemplate.
That’s not to say, however, that Tesla stock can’t maintain its valuation in a market that doesn’t care about valuation.
The question is whether or not, over the long term, TSLA falls in line with its true value (which is far lower), or if something happens that results in the stock vanishing off the market in an acquisition.
Which brings me to Volkswagen AG (ADR) (OTCMKTS:VLKAY).
VLKAY is in a very unhappy place right now. In September 2015, it admitted that it cheated on exhaust emission tests for its vehicles to make them appear cleaner than they actually were — punching out as much as 40 times the permissible emissions. The car maker is going to spend some $22 billion in the U.S. alone to make good with owners, regulators, dealers and the states.
What a mess.
So as an investor, my mind thinks about how these two companies might have a synergy of some kind that would take care of their respective problems. Then a Facebook Inc (NASDAQ:FB) pal piped up and wrote, “VW should buy TSLA.”
What a great idea! Not only that, it is actually conceivable.
The first problem would be to come up with $30 billion-$40 billion in cash and/or stock to buy TSLA. For most companies, that would be pretty laughable. Yet Volkswagen is not most companies, because about a sixth of it is owned by the Qatar Investment Authority, and about 13% is owned by the State of Lower Saxony.
Who better to buy out a government-subsidized company that a government subsidized company? Together, these entities also control about 37% of the voting rights. All it has to do is get another 14% of voting rights on board, from German institutional investors, private shareholders or other foreign institutions, which account for nearly 44% of holdings.
This would take care of several issues. First, VLKAY would solve its terrible emissions PR crisis by folding in a “clean” approach to its vehicles. It can issue some claim about eventually moving all brands under its name to Tesla’s electric model, or in some pairing with its own initiatives.
However, with its manufacturing infrastructure, which Tesla doesn’t really have in spades, it could theoretically boost the manufacturing capability of TSLA stock. Assuming actual demand for Tesla cars picks up, that demand could be met.
TSLA shareholders will get far, far more than their shares are actually worth. Of course, that wouldn’t happen at the moment. Shares would have to fall 25% or so before this could even be contemplated.
That is more likely to happen than not considering the volatility of Tesla stock. Also, every quarterly report is like a depth charge for the stock. A good report means the charge sinks to the ocean bottom undisturbed. A bad report and it detonates, and could send the stock to the bottom of the same ocean
Then Elon Musk makes a fortune and plows part of his money into SpaceX, before convincing Chinese investors — who are desperate to get their money out of the country — to buy out that company, too.
Lawrence Meyers is the CEO of PDL Capital, and manager of the forthcoming Liberty Portfolio stock newsletter. As of this writing, has no position in any stock mentioned. He has 22 years’ experience in the stock market, and has written more than 1,600 articles on investing. Lawrence Meyers can be reached at TheLibertyPortfolio@gmail.com.