That’s right, Tesla has a bigger market cap than all three of America’s automakers. If Tesla stock keeps climbing at the same rate as the first three months of the year — it’s up 32% year-to-date through April 5 — by the end of 2017 it could have a bigger market cap than all three of them combined.
That’s unlikely to happen, but it shows you just how much of a story this is.
Right now, Ford stock is stuck in neutral while Tesla stock is flying down the stock market highway at 90 miles per hour. Things are so good for Tesla at the moment we’ve got Elon Musk taunting the shorts. Normally, I’m not a fan of CEO outbursts, but it’s hard not to like a guy who’s singlehandedly changed the car business — for the better.
Recently, I reflected on Ford’s plans for self-driving vehicles including its $1 billion investment in Argo AI, a company that specializes in artificial intelligence and autonomous vehicles and founded and still run by the people who were in charge of self-driving cars at Alphabet Inc (NASDAQ:GOOG, NASDAQ:GOOGL) and Uber. I came to the conclusion that Smart Mobility LLC, the business segment responsible for Ford’s work commercializing self-driving cars, was the key to the long-term success of Ford stock.
I still feel this way, which is why in recent days I’ve pondered the question: Could Ford really ever buy Tesla? Well, three things stand in the way.
Would Ford Want to Buy Tesla?
No one’s disputing Ford has a proud history producing cars and trucks in this country; Henry Ford almost single-handedly put the Motor City on a global stage. However, the fact that it continues to lose ground to other car companies including GM, suggests its future is anything but secure.
In March, Ford’s U.S. sales fell by 7% compared to a 5% decline at Fiat Chrysler Automobiles NV (NYSE:FCAU) and a 1.6% increase at GM. For Ford it was a good news, bad news scenario this past month selling 10% more F-Series pickup trucks in March at an average transaction price increase of $2,500 over March 2016. Unfortunately, the rest of its business was abysmal.
There is signs Ford’s Lincoln business is getting stronger and its fleet sales are still pretty healthy despite a 17% decline in March against strong year-ago numbers.
I’m not sure CEO Mark Fields sees the need to throw a Hail Mary pass at this point in the game. However, we’re closer to the second half than I think anyone realizes.
Could Ford Afford Tesla Stock?
Tesla’s enterprise value is currently $54.3 billion with most of that market cap and some net debt thrown in for good measure. Any offer for Tesla stock would have to be well north of $300.
Ford’s free cash flow for the latest 12 months is $12.8 billion, higher than it’s been in the past decade and trending higher. Certainly, the higher prices it’s getting for the F-Series helps a whole lot.
Ford finished 2016 with $13.2 billion in automotive debt and $27.5 billion in automotive cash with 89% held in the U.S. That puts its automotive net U.S. cash at $11.3 billion. Without selling any assets or issuing shares it’s got enough net cash to put down a 20% down payment based on a $60 billion price tag.
If debt’s used to cover the remaining $48 billion, Ford’s debt load would grow four-fold, something that’s not nearly as attractive given Tesla’s lack of profits. If Tesla were making money it wouldn’t be nearly as daunting a task.
And of course, there are rising interest rates which could make any discussion of this kind of a moot point.
Would Elon Musk Ever Sell?
It’s really doubtful that the Tesla CEO, who is the company’s largest shareholder with 26.5% of Tesla stock, would ever consider selling the company he first invested in way back in 2004. Not to Ford, not to anyone. There’s been too much blood, sweat and tears in the 13 years since then for Musk to give up making Tesla the world’s greatest solar-powered transportation fleet.
The only way I could see Ford or any other car company getting a deal done for Tesla would be under two scenarios: The first being that Tesla needed a deal to keep going, and second, the potential acquirer was willing to sell 100% of their business that made combustion-powered vehicles.
Clearly, the first scenario is more likely than the second. That said, like the Model T, Ford buying Tesla under either of these scenarios would be historical in nature and likely successful for Ford shareholders.
But I wouldn’t hold my breath.
As of this writing, Will Ashworth did not hold a position in any of the aforementioned securities.