When Will Tesla Be Bought Out?

Dec.27.13 | About: Tesla Motors (TSLA)

As a student of Tesla (NASDAQ:TSLA) for the last six months, my prediction to this question is never. Over and over and over analysts, bloggers and pundits continue to pose the question of whether or not Tesla will go it on its own or eventually be bought. As much as I hate to continue feeding that thought process, I wanted to point out several scenarios that I ran over in my head with regards to this.

As a reminder, it doesn't have anything to do with their product or their business model. Both Tesla's product and business model are proving to be superior. As a matter of fact, it's one of the items that makes Tesla appealing. Tesla is a small company with a lofty valuation by the market that the general public is predicting to be an eventually revolutionary company.

In addition to holiday selections for the coming year, several analysts - one notably featured on CNBC.com - have predicted that Tesla could potentially be bought out in 2014:

Praxis Trading's Yra Harris said the company might be a good fit for one of Detroit's traditional Big 3 automakers, which have all made less-successful forays into electric cars thus far.

While the predictions for 2014 looming on stock market websites are somewhat sensationalist simply due to the fact of trying to entice readers, this particular comment raises a point that isn't impossible, it's just not very likely to happen anytime soon - and especially by one of the big three auto manufacturers.

The Need and Means Are There

It also has nothing to do with whether or not it would make sense for a company like Ford (NYSE:F) or General Motors (NYSE:GM) to buy Tesla. They both have the means to do it via cash or stock, and they both have electric car divisions that haven't yet caught on. I'd argue, however, that Ford's segue with its EcoBoost engines and green initiatives might give it the edge over GM. Both companies, however, would likely benefit from owning Tesla.

As a matter fact, there's a lot of companies that have enough money to do it and that would benefit from it. Who wouldn't want to own their very own Tesla?

Tesla is a Luxury Brand, and Needs to Stay that Way

However - one of the things that makes Tesla the brand that it is, is the fact that it's a luxury brand. There is an entire class of people that Tesla appeals to simply due to the fact that it is a luxury brand. So many of the people that I see driving Tesla cars are interested in the luxury appeal of the car first, as well as its innovation second.

So, the obvious question would involve around the potential buyer of the company if there was one. A company like Ford or General Motors could theoretically buy Tesla, but in doing so the brand will lose a lot of its luxury appeal. Think of all the people that bought Tesla specifically to avoid buying Ford or General Motors type vehicles - a potential buyout would alienate those customers.

The question of company like BMW or Audi buying Tesla isn't out of the question. As a matter fact, if the company were to be bought out, those would be the types of brands that will be the most beneficial to the Tesla name.

Just like Apple's recent success with their iPhone 5S, Tesla is finding the same type of success, due to the fact that their brand is held a notch above.

Musk Must Eventually Step Down to Avoid a Buyout

I know this sounds crazy, but I can draw a straight line as to why Tesla's CEO actually must eventually leave his position in order for the company to avoid a buyout.

While I've maintained in several of my other articles that it is imperative for Elon Musk to stay on with the company for the next few years, what I don't want to see is him getting bored at the helm of the ship. The right thing for him to do would be to appoint a successor just as interested in growing the business as he was creating it - once he receives his validation.

We all know that Elon Musk is a genius. And, we also know from history that geniuses of his caliber are sometimes subject to the flaw of eventually running into boredom and doing something. We can already see this rearing its head with the work that he's done on the hyperloop.

So, we have two potential scenarios:

1. Elon Musk steps down, appoints a worthy successor, and the company continues to flourish and execute on its own. Likely backed by the wishes of Elon Musk, the company could not be bought out in this situation. I believe it to be likely that Elon Musk does not want the company to get bought out. No one that is as involved as he is spends the amount of time and effort into growing a company like Tesla, only to hand it over to the highest bidder.

2. Elon Musk stays on as CEO longer than he should, becomes bored, and eventually simply turns the company over to the highest bidder so that he can move on to another project. There may come a time where he just wants it "off his plate" - and that could lead down the road of a buyout, in my opinion.

So, with it clear that Elon Musk is not doing this for the money but to find personal success and validation, I contend that it's necessary and healthy for him to eventually step down years down the road and allow Tesla to grow and flourish on its own.


To conclude, the issue of Tesla being bought out is not something that we're going to have to worry about in 2014. The less time wasted wondering about this and the more time focused on where the company is going, its fundamentals, and its ability to execute its supercharger program for the new year, the better off Tesla investors are going to be.

I've stated in many of my previous articles that I expect Tesla to be a long-term success - the main question for 2014 is one of valuation. If the macro markets hold up, will the market continue to support Tesla's lofty valuation? This is what longs should be thinking about an if they're bullish long-term like I am. They should be considering writing options or potentially trading the dips as the year progresses - not worrying about an unlikely buyout.

Of note to start 2014 will be the increase in short interest in Tesla stock (reported yesterday by Seeking Alpha) and Tesla's next earnings report. A short squeeze could be catalyzed in early 2014 if Tesla performs well beyond expectations. If that occurs, it would likely rocket the company's valuation upwards even more.

Again, I'm bullish in the long-term Tesla and a buyout is not only not part of my bullish argument, but something that it's way too early to be thinking of in general. Forget the buyout - with Tesla, just keep riding the waves.

Best of luck to all investors.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.