The Truth About Apple (AAPL) Acquiring Tesla Motors (TSLA)

Tesla Motors Inc (TSLA)

Tesla Motors is back in the buyout rumor mill and you can expect a new round of stories about a potential Tesla buyout to begin. The grapevine has been relentless in creating rumors on the likelihood that Tesla will be acquired. It is easy to ignore the market noise because opinion is free and anybody can dish out advice in support or against a deal.

Apple to acquire Tesla?

However, the market usually takes note when experts talk, and an analyst with Piper Jaffray wants Tesla to open itself to the possibility of a buyout. A star analyst at Piper Jaffray, Gene Munster in an interview on Bloomberg radio discussed why it made sense for Apple to acquire Tesla.

Munster believes that Apple  has what it takes to acquire Tesla and that both firms will fare much better as allies than as enemies. He further went on to hint that Apple does have an interest in entering the automobile space when he said, “[electric cars] are part of what’s in Apple’s DNA”.

Reasons an Apple Buyout of Tesla Makes Sense

Firstly, Apple has not done much in terms of bringing market-changing products to the market after the demise of Steve Jobs. Granted, there are the latest versions of the iPhones and iPads, and the Apple   Watch might make its mark; but the firm has not been able to wow consumers with a radically different product in the recent past. Apple’s quest for high end products and Tesla’s innovation would form a synergy that would send ICE cars into the annals of history.

Secondly, Tesla Motors  needs the mountain loads of cash that Apple has. It is no longer news that Apple has about $200B in cash and Tesla could put that money to good use. Tesla almost went Bankrupt when the financial crisis of 2009 occurred.

The firm is currently staying afloat because investors are confident about its prospects. However, the Tesla needs to scale up; otherwise, Wall Street might get bored and its share price would crash. Scaling up requires money and Apple   has tons of it.

But it won’t happen, anytime soon

The main reason a Tesla-Apple deal won’t happen anytime soon is that Apple cannot afford Tesla. Yes, you read that correctly, Apple might have $200B in cash but it can’t afford Tesla.

For one, Apple’s cash reserves are probably not banked stateside, and the firm has been borrowing money to buy back its own shares. Apple has cash, but smart corporate finance suggests that Apple might need to take on more debt to buy Tesla Motors .

In addition, Tesla will be somewhat expensive for Apple to maintain. The rate at which Tesla would need to burn cash to achieve its goals might startle core Apple   investors, it would ruffle feathers and alter the balance of a calm Apple investor community.

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Victor Alagbe is a seasoned business and finance writer with a specialty in writing about how to invest for the long-term in healthcare, pharmacology, energy and tech stocks. His long-term focus is on stocks that provide a nice mix of growth and income. For the short term, he passionately writes about trading stock options for the excitement and leverage that stock options offer.

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