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Apple Inc. (AAPL) and Tesla Motors Inc (TSLA): A Match Made in Heaven

Apple Inc. Tesla Motors Inc Car

Apple Inc. and Tesla – two of the best known firms in Silicon Valley – need each other now, as per a report from NY Times. Apple’s investment in the electric car making company in return for Tesla’s innovation might be just the “ticket,” believes the report. The notion of Apple buying Tesla is not new. It came to surface even before Cook poached some of Tesla engineers a year ago.

What the two lack?

Elon Musk – the founder of Tesla – needs billions of capital as he takes his firm towards its target of making 500,000 vehicles a year by 2018. Also, Musk could really use an injection of corporate credibility as well, as his deal to buy his solar-panel venture SolarCity appears to be running into unexpected headwinds.

Apple Inc. Tesla Motors Inc Car

On the other hand, Timothy D. Cook – Apple’s CEO – is revamping the approach to automated cars and its wider role in the future transportation. As per The New York Times, Cook fired some of Apple’s autonomous car team recently.

The problems of Musk are quite obvious, he runs the $30-odd billion EV firm, and is finding it difficult to persuade investors of the advantages of his plan to acquire SolarCity. The merger deal, which was worth $2.6bn when announced in early August, is believed to create a “vertically integrated sustainable energy company.”

How could Apple help Tesla?

James S. Chanos, a prominent hedge fund manager, panned the deal publicly last week. On Monday, the shares of solar installer closed nearly 25% below Tesla’s offer price. Even if investors back Musk in acquiring SolarCity, any drop in either company’s plan could damage its ability to attract investors for additional funding. Both SolarCity and Tesla need regular cash injections, around $2bn each last year, to fund operating and capital investment outflows, notes NY Times.

By buying a 20% stake, Apple Inc. can easily address Tesla’s capital problem. Such a move would bring around $8bn at $215 a share, just under a 5% premium to closing price of Monday. Also, Apple shareholders would probably be happy at converting some amount of money in the bank for a placeholder in an emerging leader in automated electric cars, says NY Times.

How could Tesla help Apple?

Apple is quite mysterious about its plans in the car business, but there are reports that it closed parts of its so-called Titan project and fired dozens of staff members earlier this month. Apple seems to be lacking in ideas, and Musk has car ideas in abundance. Also, a partnership with Tesla could help the iPhone maker is keeping a check on its rival Android, who appears to be further ahead of Apple is automated vehicles.

A functional Musk-Cook partnership would probably serve the shareholders of both the companies, given their shared goals. Apple Inc. could fold its wobbly car operations into a joint venture with Tesla, and add a couple of directors to Tesla’s board to handle the deals like SolarCity merger.

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Aman is MBA (Finance) with an experience on both marketing and Finance side. He has work as a Risk Analyst for AIR Worldwide, and is currently leading VeRa FinServ, a Financial Research firm. Favorite pastimes include watching science fiction movies, playing PC games and cricket.

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