It might seem ludicrous initially, but on a closer look, Apple (AAPL) acquiring Tesla (TSLA) may not really be such a bad idea. What Tesla badly lacks at the moment is a decent cash reserve, the same thing that Apple proudly boasts of. While Tesla gets to use Apple’s $267 billion of cash pile, the deal would offer the iPhone maker a leeway into the vast automobile sector.
Numerous market analysts predict that Apple would venture into the M&A market with the possibility of a mega-acquisition, ideally Netflix (NFLX) or Tesla. The electric vehicle maker is the preferred pick among the two for many investors who believe it would be a win-win deal.
Tesla is badly in need of some financial assistance as it struggles to meet its production goals amidst steady cash burn. In the recently-completed quarter, Tesla’s cash reserves fell 21% to about $2.67 billion. Cash and cash equivalents at the end of fiscal 2017 were $3.4 billion. It is widely expected that Tesla would be forced to raise more capital this year to recuperate from the cash crisis as well as to increase the production of its Model 3. Yet another option is a buyout by a big cash-holding company.
While Tesla gets to use Apple’s $267 billion of cash pile, the deal would offer the iPhone maker a leeway into the vast automobile sector.
If such a merger happens, Apple could fund Tesla’s losses for years and resolve its cash-burn challenges. As a quid pro quo, Tesla could open up a high-growth market to Apple. Apple has not been able to produce a game-changing product since the iPhone a decade ago. Though the Apple Watch and smart speakers were well received, they were not really the breakthrough product that the iPhone was.
Unless it manages to raise cash on time, Tesla could potentially be looking at bankruptcy and Apple could become a savior here. And any growth the carmaker makes in the future would transmit to Apple shares as well. Regulatory hiccups are also unlikely since both the companies operate in different sectors.
According to TheStreet.com executive editor Brian Sozzi, the deal could be valued at around $75 billion.
Bernstein’s analyst AM (Toni) Sacconaghi Jr, meanwhile, believes that Apple’s pockets are deep enough to fund the deal and have the operational capacity to overwhelm production issues. However, Sacconaghi doesn’t expect Apple to make any big acquisitions, at least in the near future.