With all the rumors about mergers and consolidations in the auto industry these days, it is inevitable that the conversation should turn to Tesla. Mind you, no one is saying (publicly, at least) that they want to buy Tesla and the company has not said anything about being a takeover target (quite the opposite), but that hasn’t stopped the news media from speculating and asking, “What if?”
Forbes — Who Would Buy Tesla And Why?
Writing in Forbes, Sam Abuelsamid, a transportation analyst for Navigant Research (which has been highly negative on Tesla for a while), begins with the obvious. Tesla stock is down, way down in fact, meaning any potential purchaser would get the company at a discount compared to when its stock was trading at around $380 a share.
He counts the company’s assets as one factory in Fremont, the shell of a new factory in China, and Gigafactory 1 in Nevada, not counting the battery cell manufacturing component which is owned by Panasonic. In exchange, the buyer would have to assume more than $11 billion in debt and the commitment Tesla has made to Panasonic to purchase $16 billion in battery cells. Then there is Tesla Autopilot and battery technology, which he describes as “interesting” but hardly unique in all the world. (Huh???)
“The Fremont assembly plant is also among the most inefficient in the industry and has terrible quality issues,” he writes. “So it’s unlikely any established player will want to add it to its portfolio, especially in an era when many companies are closing underutilized plants.” (Tesla has been rearranging the Fremont factory lately due to growing demand. Maybe underutilization is more of a demand problem, one that Tesla would help those companies solve.)
Then there is the intangible known as brand equity. “A company could generate enormous goodwill by preserving the brand and its mission to electrify transportation. Tesla has done more than any other company to demonstrate the appeal and viability of electric vehicles. …
“However, there is one enormous deal-killer for Tesla — Musk. How much of the Tesla brand value is actually tied to an irrational faith in Musk himself? If Musk goes away, what happens to the value of the brand?” (“Irrational” — hmm, it appears Sam is trying to shape perceptions here in a way that many would not call objective or … rational.)
Abuelsamid writes that mergers with such high-profile leaders involved turn sour more often than not. “Many of Tesla’s operational issues as a company are the direct result of the Musk culture of micromanagement and lack of organization and planning. I can’t imagine the CEO of any automaker big enough to consider an acquisition would even consider bringing Musk into their organization.” (But Elon Musk would surely be fine giving up his control and working for a conventional auto company CEO. For sure.)
“The only way forward seems like a fire sale rather than an outright acquisition. Musk personally has hundreds of millions of dollars in personal debt backed by his Tesla shares. If the stock price continues to decline, he may eventually face a margin call that causes him to lose up to half of his stake.
“That could trigger a downward spiral for the stock. That could eventually push the acquisition price down enough to convince someone to make an offer. However, that would require assuming all that debt and purchase obligations which any rational CEO would want to avoid.”
The only other scenario Abuelsamid sees is a Tesla bankruptcy, which would let traditional automakers come in and cherry pick its most valuable components at distressed prices. He thinks the most likely candidate is Amazon. (Remember that not so long ago short sellers were obsessed with Amazon being an overhyped stock bubble that could never make a profit.)
“Amazon could push a blending of Tesla assets with its stake in electric truck startup Rivian. It could even follow Tesla’s online sales model and sell vehicles made under contract by someone like Magna through its site. Amazon is also a lot more capable at logistics than Tesla has been so far. Alphabet might leverage Teslas built under contract for future robotaxi services that utilize their respective automated driving systems.
“There are a lot of ways this could eventually play out, however, none are likely to involve a direct acquisition of the company as long as Elon Musk is part of the deal,” he concludes.
Wait a second, where did the idea of Tesla potentially needing a bailout really come from? This article is worth a read for more on that: “The Media’s Story About Tesla Is Wrong, Facts Tell Another.”
For those of us who want to see Elon Musk and Tesla succeed and actually pull off the EV revolution that it started, all of this talk seems a bit fanciful, almost like the idea Tesla is selling unicorns. We don’t want Musk muzzled or cast aside simply because he doesn’t conform to some B School paradigm of what a proper CEO should be. In Musk We Trust! Let it always be so.
We again recommend this piece: “The Media’s Story About Tesla Is Wrong, Facts Tell Another.” And this one: “13 Amazing Tesla Sales Milestones (+ 17 Charts).” And this one: “The Tesla Smear.”