On June 10, Tesla (NASDAQ:TSLA) went over $1,000 for the first time in its history. Now, as Tesla stock flirts with a four-digit share price, I want to look back at what might have been for one of America’s most iconic automobile brands.
Before I look back and reminisce, it’s important to note that Tesla today has a market capitalization more than seven times Ford’s (NYSE:F). How crazy is that?
Well, Elon Musk recently tweeted, “Tesla is now officially the most valuable automaker of all the world!! Congrats!!.”
Bloomberg wrote about the tweet in a June 15 article, suggesting that determining the world leader was a tricky thing to pin down. It depends on how many shares are included in the market cap calculation.
If you exclude treasury shares, Tesla is number one. If you include them, Toyota (NYSE:TM) still holds the crown. Whoever is at the top of the heap, Tesla’s rise to power is noteworthy.
That’s especially true if you are Bill Ford or Mark Fields.
Let Me Take You Back to April 2017
Ford was executive chairman in April 2017; Fields was CEO. On April 5, 2017, I wondered if Ford could buy Tesla. At the time, I felt there were three things that stood in the way of a merger.
But before I get to the three things, let’s consider that Tesla had an enterprise value of $54.3 billion while Ford’s was approximately three times higher at $160.7 billion. Today, Ford’s enterprise value is $147.5 billion, 77% the size of Tesla.
The opportunity is lost forever.
Could Ford Have Afforded Tesla Stock?
The first question mark at the time was whether Ford could afford to buy Tesla.
“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,” I wrote at the time.
“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.”
Given Ford would have needed to borrow a big chunk of the purchase, I argued that Tesla’s lack of profitability made it a scary proposition.
What Was Elon’s Headspace?
The second question mark was Elon Musk. The billionaire owned almost 27% of the company’s stock and was firmly in control. The idea of Musk taking orders from anyone other than himself is ludicrous.
However, had Tesla been ready to close up shop, it’s possible Musk would have at least listened to any propositions. InvestorPlace contributor Ian Bezek discussed some of Tesla’s weaknesses around the same time as my article. One of the concerns was its increasing cash burn.
“From 2009 onward, Tesla’s free cash flow has grown increasingly negative. Apart from 2013, the company’s cash burn has worsened almost every year. Cash outflow has topped $1 billion each of the past three years. The bail-out of the cash-incinerating SolarCity will make Tesla’s cash generation situation even more perilous,” Bezek wrote in April 2017.
There is no question Tesla’s survival wasn’t a sure thing three years ago. If there was an opportunity to pounce, the door would soon close.
Would Ford Even Want Tesla?
It’s hard to imagine anyone not wanting to own such an innovative company. But at the time, Ford’s glass was half full. The F-150 was generating huge profits to cover up how badly the rest of its business was performing.
Fields was out at Ford less than two months after my article. He was replaced by Jim Hackett, who remains in the top job. Since Hackett took over, Ford’s stock has lost 42% of its value, while Tesla’s gained 223%.
If you’re a long-time Ford shareholder, that’s got to be painful.
The Bottom Line on Tesla
A year later, in May 2018, I suggested that Ford still had a chance to buy Tesla, but that opportunity would end once Tesla became profitable, posting its first-ever annual profit in 2019.
Clearly, the horse has left the barn, no pun intended. Oh, what might have been.
As for Tesla itself, as long as Musk is in charge, I remain a fan.
Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia. At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.
