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4 Reasons Why Apple Won't Buy Tesla

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The market's been buzzing since The San Francisco Chronicle ran a story on Sunday about Apple's (NASDAQ: AAPL  ) merger and acquisitions chief meeting with Tesla Motors (NASDAQ: TSLA  ) CEO Elon Musk last year.

Apple meets with companies all the time, but the source claiming that it was specifically M&A chief Adrian Perica was enough to drum up speculation that the country's most valuable company is trying to buy the market darling of the automotive world. Both stock opened higher this morning on the buzz, with Tesla snagging yet another all-time high.

Don't believe the hype. Let's go over a few reasons why this dream hookup isn't likely to happen.

1. Musk won't sell cheap
Shares of Tesla soared 344% last year and are up another 32% this year before this morning's pop. Given that kind of momentum, do you really think Tesla shareholders will be willing to punch out? 

As overpriced as the electric-car maker may seem to many skeptics, investors aren't going to sell -- triggering huge capital gains -- for a modest markup. Tesla currently commands a market cap of $25 billion. If a lot of nervous market watchers think that the stock is overvalued now, what will they think of Apple paying $35 billion or $40 billion for Tesla? 

2. Apple's not as rich as you think
Apple may be sporting $158.8 billion in cash and marketable securities on its balance sheet -- more than any other company in the country -- but that doesn't mean that it can easily cut big checks. A big chunk of Apple's dough is stashed overseas because repatriating those profits would trigger a sizable tax bill. As Apple spends stateside money on dividends and aggressive share buybacks ($14 billion since last month's poorly received quarterly report along), the percentage of capital deployed overseas grows. 

Apple can certainly afford to buy Tesla in an all-cash deal. It would probably have to be all in cash since Tesla investors aren't going to trade in their fast-growing shares for Apple's stock. However, a lot of people repeating that Apple has nearly $160 billion in the bank are misinterpreting how much of that is readily available. 

3. Tim Cook won't like having Musk around
Tim Cook is an operations guru, but he's no Steve Jobs. Does he really want Musk around? Does he really want the rumbling of a regime change the next time Cook doesn't wow the audience at a new product rollout or Apple takes a financial dip?

Having Musk around as an ally and perhaps even a board member is one thing. Having him on as an executive is not safe for Cook's health until Apple turns things around in a more convincing fashion.

4. Buying Tesla may be a conflict of interest
Tesla's selling a little more than 2,000 cars a month, a pittance of the overall car market. What do you think the rest of the automotive market would do if Apple became an auto manufacturer?

Google's (NASDAQ: GOOGL  ) Android would be the big winner, since cars would push for deeper Android integration. Yes, Google has made some surprising acquisitions in handsets and more recently smart thermostats that may seem to work against the existing players in those markets, but there would be far more to lose than gain in upsetting the market where tens of millions of cars are sold annually in pursuit of Tesla. Striking technology deals is one thing, but an outright acquisition is something else entirely.

Apple has the money to buy its way out of its present lull in organic growth, but its money is better used in developing its own fleet of products in new categories. 

Apple isn't buying Tesla. Deal with it.

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Read/Post Comments (4) | Recommend This Article (15)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On February 18, 2014, at 8:56 PM, regotoguy wrote:

    Apple isn't buying Tesla for the simple fact that it is overvalued. It's been reported the last time they met, TSLA was a $50 stock. I assume Musk wanted about $100 and Apple walked. I doubt Apple would revisit anywhere near todays price and wouldn't Musk want a premium? So I doubt it very much. I remember Must saying the Street was awarding TSLA too high a price months ago. What would he say now?

  • Report this Comment On February 18, 2014, at 9:09 PM, weaponz wrote:

    @regotoguy - Highly unlikely. If Musk wanted 100 he would have sold long ago. To Musk it is not about the money, he won't sell no matter what.

    More then likely the discussion was more of how they could work together such as the giga battery factory.

  • Report this Comment On February 22, 2014, at 12:44 PM, cmalek wrote:

    3. Tim Cook won't like having Musk around

    Unfortunately Tim Cook and Apple need someone with Musk's vision to take Jobs' place. Tim Cook is today's John Scully, may be a great manager but has the creative imagination of a door knob.

  • Report this Comment On February 22, 2014, at 9:50 PM, radass wrote:

    That is really interesting. Months ago, I had a discussion with friends over what Tesla should do next. I thought a partnership with large hi-tech firm like Apple would be the best step for the company to give more leverage against bigger carmakers like GM who are also getting into the electric car business.

    Apple with its tech innovation that got into the phone market and storage business with the i-pod, i-phone, and i-pad would be a good match with Tesla.

    I think such a move be good for both companies who are facing fierce competition in their markets. Apple can diversify into the car business while small start-up Tesla would get financial and tech help to take on the auto giants.

    If not a merger, but at least some cooperation would be fitting for both companies. Furthermore, as mentioned above, Musk's contribution can help spur Apple.

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Rick Munarriz

Rick has been writing for Motley Fool since 1995 where he's a Consumer and Tech Stocks Specialist. Yes, that's a long time. He's been an analyst for Motley Fool Rule Breakers and a portfolio lead analyst for Motley Fool Supernova since each newsletter service's inception. He earned his BBA and MBA from the University of Miami, and he now lives a block from his alma mater.

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