Why Apple Acquiring Tesla Makes Sense

Jul. 3.14 | About: Apple Inc. (AAPL)

Summary

Why Apple rumor is bad news for Tesla investors, it possibly isn’t what you think, saturation doesn't mean Apple will acquire Tesla.

The question can be settled once and for all: regardless of Apple's appetite, Tesla is not looking for a buyer and would be unlikely to agree to be purchased.

Could Apple be Looking to buy a piece of the 'Gigafactory' or 'Tesla’s touch screen' a possible point of collaboration with Apple?.

For a buyer Tesla as well as Apple, both stocks look strong at current levels, I do not see a merger in near future.

Talks of Apple (AAPL) Buying Tesla (TSLA)

It's been a while since the idea of Apple's intention to purchase Tesla Motors started circulating in the corporate world. The rumor sprang out of the supposed "secret" meeting between Tesla's CEO, Elon Musk, and Apple's head of mergers and acquisition, Adrian Perica, last spring. It must have gained strength from Adnaan Ahmad's open letter to Perica and Apple's CEO, Tim Cook, in which he suggested that Apple Inc. should try to buy Tesla Motors. However, talks between two major tech companies do not necessarily mean that one is looking to buy the other - there are a lot of other, more likely possibilities. Many investors have started bidding up Tesla because of the Apple acquisition rumors; however. Acquisition rumors can boost the share price of any company; however, when the speculation fails to materialize, the stock starts falling at a rapid pace. For instance, back in 2010, reports suggested that Apple was interested in buying Nuance Communications (NASDAQ:NUAN), which resulted in an over 85% increase in Nuance's share price.

Tesla Borrowing Apple's Technology? Tesla's touch screen: a possible point of collaboration with Apple?

In an interview with Bloomberg, Tesla's CEO, Elon Musk confirmed that he was in talks with Apple but refused to comment on a possible partnership or merger - with "one or more companies" that might have approached Tesla. He did, however, state that it was "very unlikely" that he would sell Tesla to any company. Then what exactly were the talks between him and Apple's Adrian Perica about?

Musk refused to spill the beans on that, too, but it is a possibility that Tesla might look to incorporate iOS into his cars in the future, relating in the interview that Android was rejected earlier on by the company because it wasn't ready to be used inside a car. That could possibly mean that he is considering Apple's iOS to play that role. A "Tesla iCar" would undoubtedly be the hottest vehicle to hit the market, possibly ever. With that in mind, Apple protects its intellectual property fiercely, Lewis also mentions some of the opportunities Apple and Cook have missed, specifically the acquisition of Nest by Google (NASDAQ:GOOG) (NASDAQ:GOOGL) earlier this year. Apple is sitting on over $150 billion in cash, and many investors, Icahn most vocally, want to see it spend some and find the next hot thing like the "Tesla iCar."

Why Musk Wouldn't Say "No"

Musk's chief concern is making the world travel on electric cars - or at least the part of the world that can buy Tesla's cars. This is why Tesla's biggest target for the coming years is the production of the third-generation vehicle, a mass-market electric car with a battery that could last 200 miles, and a price tag of $35,000. Elon Musk himself stated in the previously mentioned interview that the company - and he - was "super focused" on producing a mass-market electric car. It was chiefly because this goal could be compromised that he didn't want to sell Tesla to any company. Why, then, did he not flatly reject the possibility of Tesla being sold? The CEO had this to say in response:

"If there is a scenario where it seemed like it would be more likely that we would be able to create the mass-market, affordable electric car, then it would make sense to entertain those discussions. But I don't currently see any scenario that would improve that probability so that's why I think it is very unlikely" (Bloomberg, Feb. 19)

Elon Musk clearly does seem to be a man possessed with the idea of producing a mass-market electric car. Whatever he is doing is all directed at the better acquisition of that idea, more than anything else. So much so, that even if it takes selling Tesla, he would be willing to do that, too, solely in order to produce the third generation electric car. If, on the other hand, he believes that goal is closer with Tesla in his hands, he will keep the company to himself. The latter looks more likely at the moment.

Could Apple be Looking to Buy a Piece of the "Gigafactory"?

Most people seem to be centered on the idea of Tesla benefiting from Apple through a merger or technological borrowing, but, with Tesla's Gigafactory on the way, it is possible that, contrary to popular belief, Apple, and not Tesla, could be on the gaining end. The $5 billion Gigafactory would look to produce enough battery packs to power as much as 500,000 electric cars yearly by the year 2020 - and it is a possibility that it could produce batteries to power other gadgets too. Could it be that the talks between Tesla and Apple are for the latter's investment in the Gigafactory, which would, in turn, ensure it a supply of batteries? It's a possibility we cannot refuse. But some can. The open source model is more in keeping with the Google model, but Tesla is likely just fine on its own. While in the immediate term, closing the topic is probably bearish for Tesla shares as well as Apple shares, longer term it should have little impact. Both stocks look impeccable at current levels. If you think Apple and Tesla are in talks over a possible merger, or that Apple is looking to purchase the entire company, you are one of many who might as well be reading too much into the meeting between Musk and Perica.

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