- Speculation that AAPL could buy TSLA is misguided. GOOG is a much more natural fit for TSLA.
- If Elon Musk came along with TSLA, GOOG would have the world's best thinkers and do-ers under one roof.
- TSLA won't come cheap, but GOOG isn't afraid of huge acquisitions. The deal makes sense.
Apple (NASDAQ:AAPL) has around to $160 billion in cash and reserves. It's no surprise that there is rampant speculation about Apple making a large acquisition. It has been suggested that Apple should buy Tesla (NASDAQ:TSLA), and I can understand why. It is an exciting idea.
However, when you get past the exciting headline, it really makes no sense for Apple - a focused hardware and software company that is not known for large acquisitions - to buy Tesla.
But what about Google (NASDAQ:GOOG)?
Tesla announced recently that it was planning to build a huge "gigafactory" to produce the lithium ion batteries that power its cars. While the batteries will power its cars, this presents a new opportunity for Tesla, as noted by a Morgan Stanley analyst who recently upgraded Tesla's stock:
Tesla's quest to disrupt a trillion dollar car industry offers an adjacent opportunity to disrupt a trillion dollar electric utility industry.
This kind of transformational change may be a bit much for a car company that has only really gained traction in the past two years. But for Google, a company that plans to use a network of weather balloons to blanket the continent of Africa with wi-fi coverage, this kind of big picture thinking is second nature.
With the car that Consumer Reports calls the best car it has ever tested, Tesla has an opportunity to build on its success and continue to produce futuristic. The future is clearly moving toward automated driving, even now with automated blind-spot sensors and accident prevention systems. Google seems to be leading the way towards autonomous driving with its fleet of self-driving cars.
The synergy is obvious. Tesla has the world's best car. Google has the world's best self-driving technology, the brain power required to bring the two together, and the financial muscle to make a deal.
Google should buy Tesla, but it should only buy Tesla on one condition, and that condition is "Elon Musk."
Musk founded PayPal in 1998 and sold it to Ebay (NASDAQ:EBAY) in 2002. The serial entrepreneur then went on to build the commercial space transport company SpaceX and is the current CEO of both SpaceX and Tesla. Musk has big ideas and a proven track record for bringing them to life.
Those same characteristics are what make Google one of the most successful and influential companies in the world. No idea is too large for Google to tackle, as evidenced by the formation of Calico - the California Life Company. Calico aims to tackle the very nature of health and aging.
How we travel and how we power our homes, businesses and electronic lives are also big-picture ideas, and a significant opportunity for collaboration between Google and Tesla. A marriage of Google's intellectual elite and Elon Musk would be an even stronger bond.
Tesla won't come cheap, however. With a market capitalization of almost $31 billion, Google will have to wager a significant percentage of its own $404 billion market capitalization. With only $15 billion in cash, it will take a pretty significant chunk of Google's stock to convince Tesla investors to accept an acquisition offer.
Google is no stranger to buying a hardware company to match its software. It bought Motorola Mobility in 2011 as a way to seamlessly integrate its Android mobile operating system with actual phone hardware.
Google paid $12.5 billion for Motorola, and Tesla would probably cost about 3x that when you include a modest premium for Tesla shareholders. At the time that Google bought Motorola, it was more than 4x its previous largest acquisition, DoubleClick. It's not out of the realm of possibility that Google could splurge for the right opportunity.
Its Motorola experiment ended with a recent sale of the company to Lenovo. Still, it is doesn't require a stretch of the imagination to think Google will try to merge its game-changing self-driving car technology with a car company. And Tesla is clearly cheaper than GM (NYSE:GM) at around $58 billion, Ford (NYSE:F) at around $61 billion, Honda (NYSE:HMC) at around $66 billion and Toyota (NYSE:TM) at $180 billion.
Time is of the essence if Google wants to pounce. Just six months ago, Tesla would've been almost 50% cheaper than it is today. Plus, Tesla will surely try to develop its own autonomous driving technology in the coming years. I'd be surprised if it isn't already.
To merge one of the world's best technology companies with the world's best and most futuristic car would be a major move. To bring Elon Musk, Larry Page and Sergey Brin and all of Google's talent together under one roof would create the strongest team of technology thinkers the world has ever seen.
If Google bought Tesla, it could soon control how we search, how we travel and how we power our homes and digital lives. With Elon Musk joining the team, there's no stopping them.