Citigroup analyst Jim Suva recently published a buzzworthy report on buyout opportunities for Apple Inc. (NASDAQ:AAPL). A few names seemed reasonable, but one candidate — Tesla Inc (NASDAQ:TSLA) — was downright fanciful.
Suva didn’t have high odds on the deal — at just 5%, he likes Netflix, Inc. (NASDAQ:NFLX) and even Walt Disney Co (NYSE:DIS), which would be expensive — far better as potential options.
I think even 5% overstates it. There is no chance AAPL will ever buy TSLA.
That’s not to imply that Apple isn’t serious about the self-driving space. The market is too big to ignore, with a research report from the Boston Consulting Group predicting that a quarter of all miles in the U.S. could be traversed autonomously by “the end of the next decade.”
However, Apple — which it has done with other categories via things like HealthKit and HomeKit — wants to focus on building a software program. While AAPL recently was granted a permit from the California Department of Motor Vehicles for trials of an autonomous vehicle, this likely is just to test out software, not a physical car.
But even if the company changes its strategy, I still think the odds of Apple buying out TSLA are nil. There are considerable risks to a deal, which you can observe simply by looking at Tesla’s recent earnings report. For instance …
Business Model: Tesla is a complex company that’s executing the full-on advanced manufacturing of vehicles, the development of next-generation batteries and even marketing of solar panels (via the acquisition of SolarCity).
Apple has a much different business model that eschews manufacturing and instead relies on strategic outsourcing partnerships with the likes of Foxconn. Buying TSLA would force a radical departure from the current system.
Transition: Tesla has its hands full at the moment making a play for the mass market via the Model 3. Success is far from guaranteed, and already, branding seems to be an issue.
In a letter to TSLA stock holders, CEO Elon Musk said: “Moving past Q2, particularly as Model 3 becomes available, one of our challenges will be to eliminate any misperception about the differences between Model S and Model 3. We have seen a belief among some that Model 3 is the newest and more advanced generation of Model S. This is not correct.”
Musk actually referred to this as “anti-selling”! This probably explains the $50 million drop in customer deposits for the year so far to $616 million.
Scale: During the earnings report, Musk also said he is confident that sales will hit 1 million by 2020, up from 84,000 last year. But even if TSLA reaches those lofty goals, the company would remain a niche operator.
Fiat Chrysler Automobiles NV (NYSE:FCAU) CEO Sergio Marchionne, for instance, recently said an automaker needs to sell 15 million vehicles per year to remain viable.
The Elon Musk Factor: He’s already a tech legend, and he’s proven his ability to succeed across diverse industries, including online payments, automobiles and space travel. Selling out to Apple at this point in the company’s arc would be a letdown of enormous proportions, akin to a concession of sorts.
Musk doesn’t give off any whiff of wanting to step down, or essentially run a division at Apple.
Bottom Line for TSLA Stock
Betting against Musk is a painful proposition. He has a unique blend of technical chops and Wall Street wizardry that’s a rare combination in the tech world, putting him alongside leaders such as Facebook Inc’s (NASDAQ:FB) Mark Zuckerberg and Amazon.com, Inc.’s (NASDAQ:AMZN) Jeff Bezos.
These aren’t the kinds of CEOs that sell out on their biggest ambitions. It’s just not in their DNA.
So daydream all you want about an Apple-Tesla pairing, but don’t invest as if it’s going to happen.
Tom Taulli runs the InvestorPlace blog IPO Playbook as well as OptionExercise.com, which provides interactive tools & services for employee stock options of pre-/post-IPO companies. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.
