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Tesla Motors Inc (NASDAQ:TSLA), Microsoft Corporation (NASDAQ:MSFT) Deal Rumors Make Sense

bill gates elon musk tesla motors inc microsoft corporation

Microsoft Corporation (NASDAQ:MSFT) and Tesla Motors Inc (NASDAQ:TSLA) may be closer than the market allows for if rumors breaking this morning are to be believed. Market chatter suggests that Microsoft has bought a stake in Tesla Motors. That could be a boon to both firms, and would make sense given their market positions right now.

bill gates elon musk tesla motors inc microsoft corporation

The rumor was passed on by Benzinga this morning, though the news outlet said that the story was unconfirmed and based on little but third hand rumors. Microsoft has been known to buy into other tech firms in order to secure a partnership, and Tesla Motors is badly in need of cash right now.

Tesla Motors might need Microsoft

Tesla Motors had just about $1 billion in the bank at the end of the first quarter, and the firm still faces huge costs in order to get its Model X production line up and running. The average Wall Street analyst now thinks that Elon Musk’s firm will lose money this year, and if he runs out of cash he simply won’t be able to pay the bills.

There’s only four ways for a big firm like Tesla Motors to actually get cash, it can be given a gift, it can take out a loan, it can sell part of itself or it can actually become a money-making business.

The last of these isn’t on the cards for Tesla until 2020, and nobody is willing to part with a multi-billion dollar gift, except perhaps the state. That leaves debt or equity. Turning to public markets could prove a little shaky, so Elon Musk is likely to opt for a private deal if he can get good terms

Microsoft loves tech partners

Microsoft might make sense as a partner for Tesla Motors because the firm has no hand in the car market. Apple and Google, who were also looking to court Tesla if rumors are true, are both working on projects for the road. That could make their interest as partners conflict with Tesla Motors’ goals.

Microsoft is not getting onto the road any time soon, and the firm is well known for its big deals with other tech firms. Microsoft invested $240 million in Facebook Inc (NASDAQ:FB) way back in 2007, and the firm has had a long-term deal with Yahoo in place in recent years.

Tesla Motors shares were up a fraction on today’s market, but little enough of that is likely due to the rumored deal. Microsoft was down by almost 1% at time of writing.

Rumors continue to track Tesla

More than the above, however, the Tesla Motors and Microsoft deal makes sense as both firms have been linked with almost every single other big tech company. Microsoft was going to acquire everybody from Yahoo to Blackberry to salesforce in the last six months.

Tesla Motors has, says market chatter, been on the verge of doing a deal with Google or Apple, or any number of other firms in the last year. There’s no solid info behind these stories, and so partnering Tesla and Microsoft makes sense. Rumors that Tesla and Google would soon partner were getting stale.

The M&A rumor cycle can drive market moves and it can harm some traders, but for most it’s simply fun. Nigel Nicholson, a psychologist who studies gossip and rumor, has a complex theory about why people on Wall Street find this sort of thing so attractive.

A deal with Tesla Motors could be right for Microsoft, and it could be right for Tesla Motors. More than that, however, it’s right for today’s market. Tesla Motors does need to get cash in order to save itself, and Microsoft could make a good investment in the firm, but who need’s logic when the story works?

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