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Why A Tesla/Samsung Merger Makes Sense

|Includes: PCRFY, SSNLF, Tesla, Inc. (TSLA)

The problem:

If Tesla is ever to produce its Gen III vehicle in the hundreds of thousands per year (as is claimed they wish to do in 3-4 years) they will require billions of battery cells every year to do so. Just to satisfy Tesla alone worldwide lithium ion battery production needs to double or triple within these 3-4 years.

Thus far Tesla has enjoyed remaining independent from the battery making business, simply choosing the best supplier that fits their needs. This allows them the freedom to change suppliers should a superior battery technology emerge in future.

However it is unlikely that any battery maker will commit to spending many billions of dollars on a lithium ion "giga factory" without a very long term supply contract with Tesla.

Thus the current dilemma.

I believe it will be resolved by a battery maker taking a significant share in Tesla stock (perhaps controlling interest) in order to guarantee that they remain the supplier of choice to Tesla and whilst not profiting much on the battery sales they stand to make great profit margins on the final vehicle sold.

The Tesla/Samsung solution:

I feel that for Gen III to happen Tesla needs to get batteries as close to cost price as possible. It could be that Panasonic gets an increased stake in Tesla stock for this to happen but I thought of a Samsung scenario that might make more sense given the synergies between these two companies.

Samsung is probably none too happy to be missing out on the most recent battery deal Tesla has made with Panasonic. It may be that Samsung will be a supplier to Tesla as well (nothing has been officially announced yet) but I think it has certainly lost out on being the primary supplier...for now anyway.

Believe you me all the major battery players (Panasonic, LG, BYD, Sony, Samsung, etc) want the EV revolution to happen more than anyone and Tesla is the best customer to have due to their leading position, clear 100% EV focus, and supercharging network strategy (which I believe is the only way to get to a mass market long distance capable EV).

The data Tesla is collecting from the Roadster, Model S, and soon to be Model X will go a long way into developing the ideal battery chemistry for Gen III (especially the ideal chemistry necessary for supercharging at optimum rates whilst minimizing cell degradation). Samsung wants that knowledge and information from Tesla. If they don't make a move now they could fall behind big time and Panasonic may have the upper hand in the EV battery market for some time to come.

My thoughts are this. Samsung makes a bid to get controlling interest in Tesla. Elon can't prevent it (he only has 25%) and Samsung is the only battery maker that can afford to do it, with nearly $50 billion in cash as of end Q3.

Google and Apple also have the cash but the synergies work much better for Samsung.

Samsung makes touchscreens, electric motors, batteries and all the electronic components needed in the Tesla.
Bam...Samsung/Tesla just cut its costs for these components to cost price and we are one big step closer to Gen III (which is what will REALLY make the investment in Tesla pay off for Samsung as they will now make the profit margins on the end product - the EV).

500,000 EV's sold in 2017 at average price of $50k = $25 billion in revenues at 20% = $5 billion in GM...not counting all the battery pack and drivetrain sales to SolarCity and other OEM' the supercharging network which Tesla may be charging other OEM's to have access too.

Samsung would then have no qualms about building the giga battery factory needed because they would know they are obviously now the default supplier to Tesla (no worry that independent Tesla could move on to another battery tech in future and leave Samsung high and dry with a worthless giga factory).

Samsung could then be the first company in the world to fully integrate your computer, smart TV, cellphone, tablet/laptop, and car! As the only company able to do this not only would Tesla Gen III sales skyrocket but so too would sales of Samsung cellphones, computers, tablets, and TV's. The opportunities here would be endless and my guess is that this move would make Samsung the biggest company on earth (in terms of market cap) in less than 5 years.

Too add Samsung also make solar panels...why not make a bid for SolarCity as well (the world's largest single buyer of solar panels)? The data SolarCity and Tesla are acquiring is the next step in the EV/ renewable energy mega trend. SolarPanels + EV = the no electric or gasoline bill home.

Then Samsung integrates the entire home with your car, cellphone, computer, etc. Monitor your solar power production, EV charge levels, and energy consumption from your phone.

As the two companies evolve energy storage batteries will also enter the home to enable true off grid self sufficiency. Use your phone to customize if you would rather send power to the grid and make money or charge up. Going away for the weekend? Set the house to non-charge and watch the money roll in. With battery storage in the mix utilities will come to love rooftop solar power as it means they no longer need to build expensive infrastructure, like additional power plants. They can also draw from the battery packs when needed (for a fee paid to the owner of course) to enable greater load leveling.

Roll solar panels, EV, and battery backup into an easy to pay monthly mortgage like payment which SAVES you money in the long run (probably 6-8 year payback but if built into your home mortgage who cares?)

Samsung/Tesla could use all those battery packs from old EV's and recycle them into home energy storage solutions allowing for additional revenue creation for the company (also allowing for more CO2 reduction per cell produced - helping to silence the front loaded CO2 battery critics).

Samsung could appoint Elon Musk as head of their EV, battery, and solar division and call it a day.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.