E The Time Has Come For Apple To Buy Tesla

In the past, we have dismissed the idea of a business combination between Apple (AAPL) and Tesla (TSLA) on the basis that each company was better off on its own. We also have doubts that Tesla's Founder, CEO and main shareholder Elon Musk would have indulged.

But things have changed to the point where Apple buying Tesla could make all the sense in the world.

And with Elon looking to escape the short-term scrutiny of public markets and shareholders advocating for some operational support, he may be willing to consent.

We are very familiar with both companies, having been shareholders through the IW Portfolio for years.

In this article, we argue that a combined entity would be more valuable than the sum of the parts, given numerous synergies and that each company has exactly what the other most needs.

While there isn't the minimum evidence about a deal in the making and we think chances are slim, we hope shareholders in either name will find value in the article, since by highlighting what each company needs most, we will also be pointing to their main vulnerabilities.

Before moving on: we have been first to advocate for #AppleBuyTesla after Tesla's go-private intentions were made public. We are happy to see that in the meantime, Gerber Kawasaki and others have joined our voice.

 

Our original #AppleBuyTesla tweet, an idea that came to mind after envisioning Tim Cook as Tesla's ideal operational counterweight (source: Twitter @invworks)

The rationale

Apple is trading at all-time highs, its market capitalization exceeding $1 trillion. Its consumer ecosystem is the most valuable in the world. It is easy to picture a festive atmosphere in beautiful Apple Park.

But the company should not rest on its laurels. Apple is a $1 trillion+ company thanks to decisions taken a decade ago—the acquisition of PA Semi in 2008 comes to mind—, and much, much earlier than that

Competition is coming strong too: Alphabet's (GOOG) (GOOGL) and Amazon's (AMZN) ambitions are increasingly entering into Apple's core smart device and content turf. Chinese device makers Xiaomi (XI), Huawei, Lenovo (LNVGY) (LNVGF) and ZTE are getting smarter every year.

In autonomous transportation, the progress of Apple's in-house Project Titan is uncertain. Meanwhile, competitors are moving fast. Google's Waymo is going to be first-to-market with a geofenced robotaxi fleet. In China, the BAT —Baidu (BIDU), Alibaba (BABA) and Tencent (TCEHY) (TCTZF)—  are all testing self-driving cars, with Baidu's Apollo, officially supported by the Chinese Government, ahead of the pack.

And it doesn't end in autonomous systems. Tencent has taken equity stakes in electric vehicle makers Tesla and Chinese NIO. Alibaba, in start-up Xiaopeng Motors. Baidu, in WM Motor Technology and NIO.

They envision a future in which autonomous electrical transportation, logistics, retail, finance, entertainment and social are seamlessly combined into a whole. They want their tech ecosystems to cover all links in that future and are willing to take the necessary steps.

Now, we don't know much about the scope and progress of Apple's automotive project. Rumor has it that they will not be ready to go to market before 2023 at the earliest. That is 5 years later than Google's Waymo and likely 3 years later than Tesla. If they are really doing meaningful progress and are confident to come out with a differentiated solution, then there would not be a case for Apple buying Tesla.

But if that is not the case, Apple beware. One or two decades from now, Apple's mighty ecosystem, despite its strengths in smart devices, content and payments may appear inadequate, unable to close the loop with the physical world. For a company that has made of seamless integration one of its core strengths, filling the autonomous transportation void with partnerships would be underwhelming.

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Disclosure: I am/we are long AAPL, TSLA, GOOG ( more

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Comments

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Dick Kaplan 9 months ago Member's comment

This is a fascinating article and an Apple/Tesla partnership or merger would create a formidable presence in this space. But while it's clear why #Tesla and #Musk are in desperate need of a white night to sweep in and save the day, I don't believe you've made the case for how this would benefit #Apple or #TimCook. $TSLA $AAPL

Investment Works 9 months ago Author's comment

You're right that the case is more clear for $TSLA than for $AAPL.

I think for $AAPL, it boils down to the progress of Project Titan --their automotive program.

It Titan is in better shape than the consensus belief, then they may do well to pass on the opportunity. Although I'm very skeptical of Titan. Even if they are developing a 1st class self-driving solution consisting of sensors, chips and SW, it would be the first time they don't take full control of the overall product --the car.

Also, EV brand authenticity belongs to Tesla. It is too late for Apple to develop the brand power it has on handheld devices in EV, IMO.

Alexis Renault 9 months ago Member's comment

Why not? I think this is a great idea for both #Apple and #Tesla!

Dick Kaplan 9 months ago Member's comment

This is indeed an intriguing idea and no doubt, an offer Musk would likely consider if the terms were right. But it doens't make much sense for Apple.

A core component of the argument is that Apple can't be first to market. But when has Apple ever been first. The company does not take advantage of being the first. Where they excel is taking an existing product and making it better. They did that with the computer, with the MP3 player, with tablets and phones. They didn't invent any of those products.

Harry Sinclair 9 months ago Member's comment

Hmm, Dick Kaplan may be on to something. Apple does do that. Let the other company waste a fortune figuring out what works and what doesn't. Then Apple can come in with something better and it's legions of fans will switch to their product. Go $AAPL!

Danny Straus 9 months ago Member's comment

Would love to see this actually happen.

Susan Miller 9 months ago Member's comment

This is a very intriguing idea!

Alpha Stockman 9 months ago Member's comment

Yes, but I don't think Musk's ego would be able to handle that.

Barry Hochhauser 9 months ago Member's comment

That may have been true, but if you saw his recent interview, he's pretty much a broken man now. Crying and essentially saying he can't handle it. At least that's how it came across to me.

Investment Works 9 months ago Author's comment

Yes, that's why we think there would be a chance of Musk agreeing this time.

Although he is unlikely to relinquish control. That was apparently the deal breaker with Softbank one year ago.

That ideal for investors would be that he maintains control (and 20% ownership) but welcomes outside help (financial and operational).

Cynthia Decker 9 months ago Member's comment

I think you may be on to something.

Investment Works 9 months ago Author's comment

Thanks for reading.

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