Published on March 11th, 2018 | by James Ayre0
If Tesla Failed, Which Company Would Buy It? Google/Alphabet? Apple? Tencent?
March 11th, 2018 by James Ayre
If Tesla was to encounter insurmountable financial problems over the coming years — just bear with me, as a thought experiment here, no arguing yet — what exactly would end up happening?
An acquisition by one of the many large firms out there that have invested in Tesla in the past? That would seem the most likely outcome. The companies that have invested large sums of money into Tesla in the past include: various fund managers (Fidelity; Baillie Gifford & Co; Price T Rowe & Associates Inc; etc), and various large auto manufacturers and tech firms, amongst others. Quite a few firms with substantial financial resources, in other words, don’t you think?
While short sellers and media sensationalists often like to hype the “dangers” that are facing Tesla over the next few years — as Model 3 production ramps up, as Tesla Semi production begins, etc. — the reality at this point seems to be that the firm has carved out too much of niche for itself, and established far too much brand power, to simply disappear into the ether even if serious financial problems were to emerge.
Before going further with that line of thought, and as a bit of a detour here (an important one), this probably can’t be said enough considering the amount of intentional disinformation out there — Tesla very clearly could have established itself as a very profitable premium-segment auto manufacturer years back now. The reason that the company isn’t “profitable” is clearly because of the vast amounts of money that have been poured into a very aggressive expansion path (similar to Amazon’s strategy over the last two decades), as is apparent when one takes a look at Tesla’s financials.
The Tesla brand, it should be realized, possesses some of the highest gross margin percentages for its vehicles in the auto industry. Obviously, this will change somewhat as mass production of the lower-margin Model 3 gets underway, but the point here is that the path taken to date has paid off even better than was originally hoped for. The company is doing quite well, with everything going “according to plan.”
Anyway, back to the subject at hand. If Tesla was to fail financially, which firm or firms would acquire it? Below I’m going to provide an overview of the investments to date by various major firms, as well as a bit of speculation. (As an informal rule here: 1% of Tesla is currently equal to around 1.69 million shares.)
First, though, I’ll provide an overview here of some of the top shareholders:
FMR — 9.89% (16.7 million shares)
Baillie Gifford & Co — 7.64% (12.9 million shares)
Price T Rowe & Associates Inc (MD) — 6.39% (10.79 million shares)
ClearArc Capital Inc (Fifth Third Bank) — 4.95% (8.37 million shares)
Tencent Holdings Limited — 4.83% (8.167 million shares)
Vanguard Group Inc — 4.11% (6.95 million shares)
Blackrock Inc — 3.33% (5.62 million shares)
Jennison Associates LLC — 2% (3.38 million shares)
Bank Of Montreal — 2% (3.37 million shares)
Blackrock Institutional Trust Company, N.A. — 1.85% (3.12 million shares)
Capital World Investors — 1.79% (3.03 million shares)
While the fund managers above obviously aren’t going to pursue an acquisition of Tesla if it was to fail, its possible that the backers of some of the funds or venture investment arms would. In particular, an acquisition by Tencent would seem a real possibility … presuming that Tesla was to face existential financial problems after Model 3 mass production was running smoothly.
Google/Alphabet — $? Invested Into Tesla To Date, & Vast Resources At Its Disposal
It’s not clear exactly how much Google co-founders Larry Page and Sergey Brin have put into Tesla over the years — whether through stock purchases, bond purchases, or other means — but the total is rumored to represent a significant amount of money.
Nor is it clear how much other primary figures at Google have put into Tesla, but it seems likely that a fair amount of money has been invested into the firm one way or another by such people — considering the neighborly association and close contacts between Alphabet/Google and Tesla.
What does this imply with regard to a possible acquisition by Alphabet/Google of Tesla in the hypothetical case of financial problems? It’s hard to say, but considering how much money is slushing around in the coffers at Alphabet nowadays, and the firm’s apparent interest in further diversification, such an acquisition could make sense.
The potential synergies with Alphabet’s self-driving vehicle tech firm, Waymo, stand out as a reason. Perhaps more importantly, though, if Alphabet was to own both Waymo and Tesla, then there’s a good chance that the firm would own a substantial part of the self-driving vehicle sector within ~10 years time — as Waymo appears to be far and away the leader at this point in the sector, from my vantage point anyways, with Tesla representing a potentially dangerous competitor.
I’ll end this speculation here by noting that Larry Page has made off-hand remarks in the past about how he wouldn’t mind leaving all of his money to Tesla CEO Elon Musk if he died, as Elon would put the money to good use. It’s not clear how serious Page was when he made the comments, but it stands to reason that acquiring Tesla if it was facing existential financial problems wouldn’t be out of the question, at the very least.
Tencent — $1.8 Billion Invested Into Tesla To Date (~5% Stake) & One Of The Largest Companies In The World
Tencent Holdings Ltd announced last year that it had acquired a roughly 5% stake in Tesla (in total) — via stock purchase during an offering and also simple open-market trading. Altogether, the company is known to have put around $1.8 billion into the stake acquisition, and now possesses around 8.2 million shares of Tesla’s stock.
Now you may have never heard of Tencent Holdings Ltd before, nor of the larger Tencent umbrella in general, but that isn’t because the firm isn’t a major player — it’s simply because it’s based out of China. Think of something along the lines of Alphabet/Google, but based in China, and you pretty much have the idea.
So, would Tencent be likely to greatly broaden its stake in Tesla if the opportunity was to arise? Given that Tencent execs haven’t made much in the way of revealing comments about Tesla, it’s not clear whether there would be interest there or not. What is clear, though, is that company execs (or, at the least, venture arm managers) consider Tesla CEO Elon Musk to be “entrepreneurial” and a “visionary,” and also that the firm prefers to invest in companies that are headed by such figures.
All of that considered, I’d give the odds of Tencent wanting to acquire Tesla in the case of financial problems at around 50-50 — with there being a large amount of flexibility to those odds, dependent upon the financial terms of the acquisition.
Apple — Market Expansion & Potential Synergies
As far as I’m aware, Apple hasn’t invested anything into Tesla. Why then do I list Apple as a possibility when it comes to a hypothetical acquisition of Tesla following hypothetical financial problems?
Primarily because of the potential for synergies with Apple’s own self-driving vehicle tech development; because of the potential to monopolize the content on those massive touchscreens that all of Tesla’s cars feature; and because of the massive amount of money that Apple has available to it (acquiring Tesla at a financial low point wouldn’t break the bank, or even come close to it).
Rather than speculate too much here, I’ll just note that much of Apple’s interests in self-driving car tech likely relates to the potentials that could open up as people in cars stop actually driving and instead start looking for ways to keep themselves entertained while being shuttled around by computers.
There’s no doubt Apple execs see dollar signs in their heads when they consider such things. Tesla’s cars already being the high-tech items that they are, and already featuring very large touchscreens, would likely make them particularly appealing to the execs in question. Though, who can say for sure?
Toyota Or Daimler — $50 Million Invested Each, $50 Million In Stock Sold Off Years Ago
As part of parts-supply agreements relating to compliance cars that both companies ended up selling, both Daimler and Toyota have in the past made notable investments into Tesla, with both investments reportedly helping to keep the company expanding fast at low points (financially).
Daimler invested $50 million into Tesla back in 2009 (for a 5% stake) — and then promptly sold half of that in the near term, before unloading the rest a few years later at a substantial profit. And Toyota invested $50 million into Tesla around the time of the firm’s IPO (for a ~3% stake), before unloading it all a few years later at a substantial profit. The investments were part of broader deals that allowed Daimler to create and offer a number of compliance electric vehicles for sale in California and related markets, and allowed Toyota to offer the RAV4 EV to compliance car buyers in California for a few years.
These earlier investments considered, what’s the possibility that they would acquire Tesla if the firm was facing existential financial problems? I’d argue not very likely. Though, an acquisition by Toyota would seem more believable than one by Daimler.
Even if one was to assume that the will was there, and that the financials could make sense, I don’t find it very credible that Tesla execs would approve an acquisition by Daimler. Elon Musk, in particular, doesn’t seem too likely to be willing to put the firm in the hands of a company like Daimler — a company whose execs may well wish for the business to fail and possibly bring a large part of the broader plug-in electric vehicle market with it.
What seems far more likely is that one of Tesla’s neighbors in the tech sector would be vetted as the one to acquire it. In the past, CEO Elon Musk had made comments about various Alphabet/Google execs that imply as much, and an acquisition by Apple could make some sense for the company as well — giving it a new, potentially huge revenue stream.
But who can say for sure? What’s your guess?