But while news of the Tesla-Apple merger talks has recently broken, the meeting itself is actually very old news; TSLA execs met with the M&A chief of AAPL almost a year ago.
Furthermore, there are many practical barriers to a Tesla merger with Apple — or anyone else, for that matter.
So while a Tesla-Apple union might make for a sexy headline, investors hoping for a big deal that will give TSLA stock a big pop better sit back and relax.
Nobody is buying Tesla anytime soon.
AAPL-TSLA Buyout Barriers
A quick rundown of the practical barriers to an Apple merger include:
No existing car business: An obvious one, but a biggie. While Google (GOOG) is happy to mess around with self-driving cars and contact lenses that measure blood sugar, Apple is very much focused on its iPad and iPhone (and the software/apps that support them). There are theoretic synergies between mobile devices and cars, including streaming radio and GPS capability, but that’s a big leap to link the two businesses.
No existing manufacturing base: Even if Apple was interested in making cars, it’s important to remember that the company outsources production of its gadget line right now — and those suppliers are all in Asia. Tesla owns a factory in California. While it’s possible Apple might want to eventually get its hands dirty with manufacturing … why would you start with electric cars?
Elon Musk: A dynamic entrepreneur, Tesla CEO Elon Musk is not likely to sit around smiling as an Apple vice president. A guy who started private space flight company and an electric vehicle manufacturer just a few years apart isn’t window dressing and might bristle at being part of the Apple mothership. Sure, Musk co-founded PayPal and sold it to eBay (EBAY) … but it’s doubtful that he’d want to ride off into the sunset, as Tesla is very much in the ramp-up phase and needs a firm hand to keep it growing to its full potential.
TSLA Won’t Be Bought Out
On the surface, there are admittedly a few things Apple would find attractive in buying out Tesla — big-ticket items that could significantly move revenue, pleasing investors by actually deploying some of the roughly $140 billion in cash and investments AAPL currently sits on, and of course the big buzz from a deal.
But Tesla isn’t a good fit — and even if it was, it certainly isn’t a good fit at current valuations after soaring 500% from early 2013. If Apple wanted to make a move for Tesla, however unwise that would have been, it would have been better off bartering for TSLA last year before the run-up.
And for the record, if Apple isn’t going to buy Tesla, nobody is. At $25 billion, Tesla is hardly an easily digestible business. Only the likes of an Apple (AAPL) or a Microsoft (MSFT) could finance the deal, and TSLA isn’t a good fit for either.
As for traditional automakers … even if General Motors (GM) or Ford (F) could come up with the cash, they are well on their way to developing their own lines of plug-in electric vehicles — and after closing struggling auto lines like Pontiac and Mercury, respectively, why would they add another brand like Tesla back on top?
Tesla shareholders have a lot to like in TSLA stock — not just the gains, but also the potential.
But if you’re holding out for a buyout, don’t hold your breath.
Jeff Reeves is the editor of InvestorPlace.com and the author of The Frugal Investor’s Guide to Finding Great Stocks. As of this writing, he did not hold a position in any of the aforementioned securities. Write him at firstname.lastname@example.org or follow him on Twitter via @JeffReevesIP.