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Should Apple buy Tesla?

Almost 9 months back, I wrote in my blog on how Tesla is like Apple of car industry. That was when TSLA stock was around 80+ with market cap of around $10 Billion. Fast forward 9 months and TSLA stock is hovering around 210 with market cap of close to $25 Billion. And during these 9 months lot of things have changed for US economy as well as Silicon Valley. Bubble type valuations are back with FB buying WhatsApp for $19 Billion (nearly 1000 times annual revenue) and market rewarding FB in taking this bold step. While all this is happening, Apple lovers (including myself) are patiently waiting for iPhone 6 and iWatch (not for iTV). Apple as company is doing great but in these growth hungry world, stock is not getting any love. It's trading at P/E of less than 10 (after accounting for cash on balance sheet). Why? Because heyday of growth are over at Apple. Even to grow at 10%, Apple needs to not only maintain the momentum in iPhone and iPAD but also find additional product category which could bring in $20 Billion in a year. There are not many industries which could provide such type of revenue growth. This is what started me thinking?
How about Apple buying Tesla to solve it's perceived growth problem and open up a new product category which has potential to become $100 Billion category. Here are some points to consider for this hypothesis.
  • Car Industry is one of the biggest in world when it comes to annual sales of over $2 Trillion
  • It is going thru inflection point where major technological changes are happening first time in nearly century (note that Henry Ford had combustion engine nearly 100 years back and 90% cars are still being same engine technology)
  • Tesla has built leadership position when it comes to new EV space 
  • Tesla has similar goals as Apple - focus on design, simplicity and branding
  • Tesla strategy: Focus on up-scale market and then bring costs down for mass consumption
  • Tesla as company seems to be gaining momentum with growth of nearly 40%. With recent expansion in China, it should continue the growth momentum 
  • Apple has enough cash to buy Tesla outright even if they have to pay $40 Billion (nearly $400 per share). Cash on Apple's balance sheet is drag for Apple stock. 
  • Buying Tesla would provide a brand new product category for Apple with potential of $100 Billion revenue if they are able to grab just 5% of market share.
  • This would be a very bold move for Apple given that they have never done such a big deal. But this would be transformative for Tim Cook's leadership and Apple as company
  • As a bonus, Apple could look at new generation CEO Elon Musk taking helm at Apple after Tim Cook retires!
This sounds way out-of-box but hey who thought a company with 55 employees would get bought for $19 Billion. So anything can happen in Silicon Valley.

/Shyam

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