Here at InvestorPlace, I’ve been arguably one of the biggest supporters of Elon Musk and Tesla (NASDAQ:TSLA) over the years. Admittedly, that’s been a tough position to hold as TSLA stock continued to crash and burn in recent trades.
And even though I’m as loyal as the next man or woman, I’m also realistic. Tesla’s fall from grace in 2019, a slide that’s seen TSLA stock lose 37% of its value year-to-date, is shocking.
I’m now doubting that Musk can pull a rabbit out of his hat before the electric-vehicle maker runs out of money.
TSLA and Merger Speculation
In April, I suggested that Fiat Chrysler (NYSE:FCAU) should buy Tesla to solve its emissions output problem in Europe. My rationale being that FCAU was already paying Tesla hundreds of millions of euros to meet the stringent EU regulations to take effect in 2021.
Now, it looks as though Tesla might not be able to rely on those payments to generate much-needed cash flow. That’s because Fiat Chrysler is looking to merge with Renault (OTCMKTS:RNLSY).
On May 27, Fiat Chrysler announced that the Renault board would consider its merger proposal. If accepted, the deal would see each company owning 50% of the combined entity. Together, it would have $191 billion in annual revenue with $11 billion in operating profits.
By sharing development costs for new technology to deliver electric and self-driving cars, the two companies save money while gaining access to new and stronger markets. In Renault’s case, it would gain entry to North America while Fiat Chrysler would get a stronger foothold in Europe. Most certainly, Renault’s smaller vehicles would help FCAU on the emissions front.
The best-case scenario for Tesla is that the merger doesn’t meet the French government’s approval. France owns 15% of Renault stock. Failing that, any deal would likely take 18 to 24 months to close given regulatory approvals and other considerations. This would make Tesla the only deal on the table that would solve Fiat Chrysler’s near-term emissions problems in Europe.
The Possible Case for Tesla Stock to Hit $200
Right now, Tesla shareholders’ best hope of seeing TSLA stock move back to $200 or higher involves large-scale movements. For example, a big automotive conglomerate such as Volkswagen (OTCMKTS:VWAGY) could make a play for the company.
However, recent comments from Bernstein’s European auto analyst Max Warburton suggested that the German vehicle maker would have almost no interest in the entire company. It could, though, consider some of Tesla’s assets. Warburton wrote in a June 3 note:
“That assets are attractive? Tesla no longer has genuinely differentiated tech. The production plant is sub-par. The Gigafactory is probably not essential (and may be claimed by Panasonic). The brand still has value, albeit one that is declining fast. The Supercharger network also has some value. Perhaps these get picked up. But at what price?
“We struggle to see it being sold as a going concern.”
So, if most of the large auto companies aren’t likely to be interested in Tesla, that leaves tech companies like Apple (NASDAQ:AAPL) as one of the few options left for Elon Musk in terms of finding a well-financed partner.
As recently as 2013, Roth Capital Partners analyst Craig Irwin suggests Tesla could have sold itself to Apple for $240 a share.
From that perspective, it’s possible that Apple would find Tesla attractive at $200 a share or slightly higher. This is especially relevant due to Tesla’s strong growth since then.
The Bottom Line on TSLA Stock
Two years ago, investors wondered if Tesla had the manufacturing chops to meet the high demand for its vehicles. Now, they’re wondering if Tesla has the demand to meet existing and future expansion plans of its manufacturing facilities.
That’s not something I could have imagined coming to fruition. But now, it appears that the bloom just might be coming off the Tesla rose.
That’s terrible news for American innovation but a fact of life for the world in general. You can’t survive without enough cash to operate your business. It’s basic math.
Early in 2019, I wrote a story about the seven reasons Tesla will win in 2019. Several of those reasons have either fallen aside, aren’t nearly as relevant six months later, or are still valid but becoming less so with every passing day.
I still believe in Elon Musk and the Tesla business model. And while it’s going through a rough patch, ultimately, I think that Ark Invest CEO Catherine Wood’s got the right idea about Tesla stock.
“There is an amazing inefficiency, amazing inefficiency, in this stock,” Wood told CNBC in early May. “It is our highest conviction idea for a reason.”
It might take a while. But barring a correction in the second half, I see it hitting $200 by the end of 2019.
At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.
