Ford Won't Buy Tesla, But a Partnership Makes Sense

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Looking in the rearview mirror for too long and not concentrating on the road ahead is dangerous for drivers. That same logic hold true when considering investing for the long-term, namely because past performance is not indicative of future results. Therefore any potential suitor for Tesla Motors (NASDAQ: TSLA  ) should focus on how this still very young company can develop its battery technology.

Recent market rumors have suggested Ford (NYSE: F  ) or General Motors (NYSE: GM  ) could look to acquire Tesla, but while there can be a case for both companies to make such a move, the valuation of Tesla's stock close to $19 billion may impede any real internal M&A discussions despite Ford's $26 billion cash hoard and concern for challenging hybrid sales and, in GM's case, a 3% year-over-year decline in sales volume for the Chevy Volt. However, recent headlines regarding fire-related problems for the Model S may have Elon Musk more willing than ever to still get out while the getting is good so he can concentrate on Space X, SolarCity, Hyperloop, or whatever comes next.

With Ford not looking to rely as much on pickups and SUVs and anticipating a major portion of its sales lineup in the next decade will come from EVs, I'm more inclined to think Ford is positioned more strongly to acquire Tesla, especially since GM has a rookie CEO. With that said, I do think a strategic relationship with Tesla over an outright acquisition makes better sense for Ford or GM since EV costs are still high, range is still an issue and total EV sales represent less than half of 1% of auto sales.

Ford's conservative spending after its 2009 restructuring is another reason why a partnership with Tesla could may make better sense from a financial perspective. I also don't think Ford has been planning a George Steinbrenner-like Yankee managerial move by discontinuing Mercury and selling Jaguar, Land Rover, and Volvo, all in an effort to build cash to acquire Tesla. The wildcard that could make a Tesla acquisition more credible is the willingness to pay the huge price tag as a means to help offset upcoming EPA CAFE standards, which will see mpg go from 27.5 to 37.8 by 2016.

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  • Report this Comment On January 05, 2014, at 3:35 PM, duuude1 wrote:

    Hey John,

    Couple of comments... you said:

    "... recent headlines regarding fire-related problems for the Model S may have Elon Musk more willing than ever to still get out while the getting is good..."

    The headlines of Model S fires, as you should know by now, were embarrassingly over-hyped nonsense over the much more prevalent car fires associated with conventional gasoline engines. Musk clearly communicated this using real data. You don't believe Tesla fires are a problem do you?

    Also, as someone covering Tesla, you should be aware of what Elon's main goals are. You are aware that he invested all of his personal wealth into both SpaceX and Tesla when they were in dire straits right? So merely cashing out and succumbing to weak nerves and greed are not part of his DNA. Getting electric vehicles into the mainstream is one small step in his larger goals - are we there yet? Would cashing out to GM or Ford get him closer to his goals? No.

    But I do agree with you on strategic relationships - and I think Elon would be more than willing to enter into relationships with conventional auto companies. He's already working with Toyota and Daimler, right?


  • Report this Comment On January 05, 2014, at 3:52 PM, weaponz wrote:

    What people don't realize is Musk is building an ecosystem. Everything he does is related. He is not going to sell because it goes all together. Let us take a look.

    Tesla has electric cars, the batteries that are used in the cars are also used in SpaceX dragon and soon solarcity storage. Electric vehicles are also the only way to transport in space as combustion does not work without oxygen. Then the power infrastructure is charged using solar panels from solar city, these DC chargers also use batteries. Solar is also the easiest way to get power in space. The Hyperloop is also powered by solar, the capsules/pods inside the hyperloop use batteries like in the Tesla. For acceleration and deceleration of the hyperloop they use linear versions of the Tesla motors. Tesla cars also use areospace bolts that are used in SpaceX dragon as well.

    Can't you see that they are all connected? He is monetizing his businesses and utilizing scale to bring down costs for all his companies plus providing himself everything he needs. The gigafactory is another element to the equation of centralizing everything in-house.

    He is not worried about a few fires, if anything they were expected. Because again fires are common when dealing with cars.

    So Musk is not going to sell, but he is open to partnerships where Tesla licenses their drivetrain to Ford.

  • Report this Comment On January 06, 2014, at 5:02 PM, Capt601 wrote:

    You write an article about Tesla and another company buying them and you fail to mention Tesla's partnership with Toyota and Daimler? Wow. Did u do any research?

  • Report this Comment On January 07, 2014, at 3:41 AM, ashaskevich wrote:

    This is a half ass attempt at writing an article about Tesla. Slap some rumors together and make it sound good.

    "However, recent headlines regarding fire-related problems for the Model S may have Elon Musk more willing than ever to still get out while the getting is good so he can concentrate on Space X, SolarCity, Hyperloop, or whatever comes next."

    Wrong. That is more reason than ever for Elon to stick around and see through the mess and take things to the next level. Elon is no pansy. Elon is a man's man.

  • Report this Comment On January 07, 2014, at 3:42 AM, ashaskevich wrote:

    I meant to say Elon is no p----, but the filters kicked in.

  • Report this Comment On January 07, 2014, at 10:52 AM, thegreentreefrog wrote:

    The Tesla S @ 4,741 Lbs The ELECTRIC PIG !

    Why would anyone pay $75,000 for a car that couldn't win a race from NY to Philly against a 1972 Chevy Vega !

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John Licata

John Licata is the Founder & Chief Energy Strategist of Blue Phoenix Inc. You can follow John on Twitter @bluephoenixinc

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