On President’s Day the markets took a day off, but the rumor mill remained fully operational. Word leaked that in 2013, electric carmaker Tesla Motor’s (TSLA) enigmatic CEO Elon Musk had met with the head of Mergers and Acquisitions for Apple Inc. (AAPL). The sewing circle that is the tech world immediately went into full fantasy mode, concluding that this could mean but one thing: Apple is mulling the possibility of buying Tesla, and thus acquiring what is probably the hottest tech property in the world.
This rumor is not without precedent. Back in October Berenberg analyst Adnaan Ahmad went as far as to write an open letter urging Apple’s CEO Tim Cook to make that very acquisition. He imagined a real game changer of a product – an iCar that “could bring in at least $16 billion in annual revenues.”
Of course, at the time Ahmad wrote his open letter, Tesla was a few billion cheaper. The week before the rumor surfaced, Tesla touched a peak valuation worth of $200 a share, representing a market cap of $25 billion. That’s an awful lot, and considering Tesla trades at a P/E that’d make a tech bull circa 1999 raise an eyebrow, it’s hard to argue Tesla isn’t at least a little overvalued.
Let’s assume there’s some validity to these talks. And even though Tesla’s market value has already notched up considerably since last winter, Apple is still interested. Is the assumed offspring of such a marriage – Ahmad’s imagined iCar – worth that large a price tag?
But the iCar, or whatever product would come from a Tesla acquisition, isn’t the real prize. Getting Tesla’s CEO Elon Musk on the team is.
Apple has a history of acquiring brands to bring a CEO on board. Specifically, the CEO that turned Apple from a moribund computer maker into the biggest single brand in the world, Steve Jobs.
Jobs had been forced out of Apple in 1985 after a brief power struggle. During his absence Apple floundered while Jobs went off to put together his company NeXT. When Apple wanted Jobs back on board, they acquired NeXT in 1996 for $429 million and stock, bringing their products and Jobs into the fold.
NeXT’s computers were ultra high-end, and made clear that there was a market for upscale electronics that was ripe for exploitation. To be sure, Apple was interested in NeXT’s products. But far, far more than that, they were interested in the man peddling them.
Tesla, as well, trucks in high-end products, in this case, electronic “smart” cars. But Apple’s not getting into the motor game. They’re getting in on a company that gets treated in the market in the exact opposite fashion that Apple does.
Apple can make as much money as they want and their stock won’t budge, because since Jobs died, they’ve lost their edge. Tesla, meanwhile, has captivated tech investor’s minds and wallets, profit-to-earnings ratio be damned.
An Apple buyout of Tesla, or even the Musk-affiliated SpaceX, wouldn’t be a product pickup. It would be one of the biggest talent buys the world has ever seen. And as Apple’s investment in Jobs via NeXT paid off exponentially well, so could the acquirement of possibly the most revered CEO in the tech world.
Tesla reports earnings on Feb. 19, which should shed considerable light on their status.
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