Elon Musk recently scrapped his go-private plan for Tesla (NASDAQ:TSLA) amid shareholder push-back. Now, there is renewed chatter on the Street that Apple (NASDAQ:AAPL) might come in and put some of their cash to work in Tesla. Specifically, the talk suggests that either Apple buy Tesla outright or invest very heavily in the company.
But, is such chatter really justified? Will Apple buy Tesla or even invest a substantial amount in the constantly-in-the-news automaker?
I tend to agree with Loup Ventures’ Gene Munster on the topic of Apple buying Tesla. In a blog post titled, “Apple + Tesla Is a Fairy Tale with a Twist“, Munster clarifies that any deal between the two companies is unlikely because Tesla will likely achieve profitability over the next year. That will cause Tesla’s value to rise and Apple to be less interested in putting money to work at an elevated valuation.
Even in the event that Tesla doesn’t achieve profitability, a deal still likely won’t materialize because Tesla shareholders don’t want to sell, Musk wants to maintain control and Apple is already pushing its own autonomous vehicle project.
In other words, while an Apple-Tesla marriage sounds exciting, it isn’t going to happen now or anytime soon. Basically, to see Apple buy Tesla, both companies would want it to happen, and neither does.
Tesla Will Likely Achieve Profitability Soon
I’ve said it time and time again, and I’ll say it once more. The most likely outcome in the wild 2018 Tesla saga is that the company achieves profitability in the back-half of the year behind strong Model 3 production ramp. Historically speaking, even brief moments of profitability send Tesla stock flying higher. I’d expect back-half 2018 profitability to do the same thing, and wouldn’t be surprised to see $400 become this stock’s new floor in a few months.
If that happens, any dreams of Apple investing big into Tesla or outright trying to acquire the company get axed. Apple has a lot of money, but at $400, Tesla is looking at a ~$70 billion market cap. And that doesn’t include the company’s mountain of debt sitting on its balance sheet. Apple likely won’t be attracted by the idea of shuffling out such a large portion of its cash pile to one company.
On the other side of the potential transaction, if Tesla does become profitable in 2H18, then shareholders likely won’t accept any offer that isn’t substantially north of $500. The murmurs on the Street, partially confirmed by Musk shutting down the go-private plan, were that shareholders weren’t going to take a $420 go-private offer today.
Tesla isn’t profitable today. Far from it. Imagine if the company does become profitable within the next year. Those same shareholders not accepting a $420 go-private offer will likely demand prices way above $500 to be taken out. At those levels, we are talking about a lot of money, and likely too much for Apple to pull the trigger and still be reasonably comfortable.
Apple Doesn’t Want To Buy Tesla & Tesla Doesn’t Want To Sell
Even if Tesla doesn’t hit its profitability targets over the next year, a deal where Apple buys Tesla is still unlikely.
Apple is showing zero interest in buying or investing in Tesla. Instead, the consumer technology giant is going full boar with Project Titan, its own electric car project that will presumably be a major Tesla competitor. Why would Apple buy Tesla after using its own resources to design a Tesla competitor?
Moreover, Tesla shareholders are showing zero interest in selling the company. Instead, in the wake of Musk’s go-private tweet, you had a handful of bullish investors come forward and speak out against the potential deal. Most notably, ARK Invest CEO Catherine Wood went on CNBC and explained that Tesla could be a $4,000 stock.
In other words, Apple doesn’t want to buy, and Tesla doesn’t want to sell. So long as that remains the case, then regardless of what happens on Tesla’s profitability front, a deal between Apple and Tesla remains unlikely.
Will Apple Buy Tesla?
It’s fun to imagine new integrated products that these two companies could dream up while operating under the same umbrella.
But, those integrated products will likely remain in your dreams. At this point in time, it is highly unlikely that Apple makes a play for Tesla in the foreseeable future.
As of this writing, Luke Lango was long TSLA and AAPL.