Why the Rumors About a Tesla-Apple Merger Are All Wrong

Tesla Motors (NASDAQ: TSLA  ) is no stranger to speculative press. However, the latest theory that tech giant Apple (NASDAQ: AAPL  ) might acquire the electric-car maker are both outdated and wildly overblown. The buyout rumor resurfaced after the San Francisco Chronicle broke news over this past weekend about Tesla CEO Elon Musk meeting with Apple's chief of mergers and acquisitions -- a meeting that took place last spring.

As a result, the Web is abuzz this week with headlines such as "Could Apple Drive Away With Tesla?" and "Tesla Motors Closes at Record After Apple Merger Rumor Surfaces." Both stocks moved higher on this news. Shares of Tesla even accelerated to a fresh high of $205.72 on Tuesday. However, it's unlikely that Apple would acquire Tesla outright. While Apple certainly has the cash reserves to do so, a strategic partnership between the two companies makes more sense.

Here's why.

Finding common ground
Forget an outright merger with Apple -- Musk is smarter than that. Not to mention, with a market cap north of $23 billion today, Tesla is expensive, even by Apple's standards. Nevertheless, there are plenty of reasons why these companies should work together. Think about it. What's one thing that both Apple and Tesla have in common? The answer is an unwavering need for lithium-ion-battery cells. That's why a Tesla-Apple "giga factory" could be the play here.

With Tesla preparing its all-electric crossover, the Model X, for delivery later this year and developing its mass-market third-generation car slated for a 2016 launch, lithium supply is the biggest challenge facing the automaker in coming years. That's because, in lieu of gas, lithium-ion batteries power Tesla's cars.

During the company's third-quarter-earnings call in November, Musk said, "If we are to produce 500,000 vehicles per year we need cell capacity commensurate with that, which is bigger than all lithium-ion production today, or at least on par with it."

That's why Musk plans to build a massive "giga factory" in the not-so-distant future. Not only would this factory be environmentally friendly, but it would be capable of producing lithium-ion-battery packs at a scale comparable to all lithium-ion production in the world today. Given the sheer size of such a facility, Tesla would certainly benefit from Apple's resources.

Joining forces to build a giga factory also makes sense for Apple because all of its products use lithium batteries. Moreover, don't overlook the fact that Apple has been flooding resources into green U.S. factories lately, including its Mesa, Ariz., Sapphire venture, as 9to5Mac reported.

The solar solution
Aside from Apple, it's likely that Tesla will also work with SolarCity (NASDAQ: SCTY  ) on this future lithium plant. Musk has already said the factory would be green and self-sustainable to some extent, so what better partner than the solar energy company run by his cousin? "It's going to have essentially zero emissions and there are no toxic elements that are going to come out of this factory and we will build recycling capability right into the factory," Musk told analysts during Tesla's third-quarter-earnings call. 

Tesla is already collaborating with SolarCity on other ventures, including a new energy storage system and Tesla's Supercharger network. SolarCity provides the solar panels used to power supercharging stations that Tesla is installing throughout the United States, Canada, and Europe today. And like Apple and Tesla, SolarCity's business relies on lithium-ion cells to a certain degree.

Source: Tesla Motors.

SolarCity, which installs and helps customers finance solar panels, uses Tesla's lithium-ion batteries in its new solar-powered storage systems. Therefore, the potential benefits of a factory to produce such batteries at scale are significant for not only for Tesla and Apple, but for SolarCity as well.

Given the opportunity here, it's more likely that Apple would pursue a joint venture on a giga factory with Tesla than an outright buyout. Tesla is set to report earnings after the bell today, so investors will likely get more color on the company's plans for a giga factory during the conference call with analysts this afternoon.

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  • Report this Comment On February 19, 2014, at 4:54 PM, Jim5437532 wrote:

    Tesla + Apple = Frapple {baked wrapped apple} = Crapple

    Both Apple and Tesla have spyware that make it possible for them to track & spy on customers user habits. Big brother type of stuff.

    How is it a "secret" meeting when there are dozens of articles posted on this "secret" meeting that seem more like advertising than news? I think the creampuff articles about this "secret" meeting is a way to create buzz to inflate stock that is already overvalued and try to divert attention away from the companies problems. Much of the so-called "news" is veiled advertising.

    Are companies that manufacture defective products that catch fire and EXPLODE, a good choice to manufacture medical devices?

    Tesla Motors manufactures more excuses & hype, then cars. Tesla Motors still has not delivered on the fire hazard recall. Tesla has been dragging its feet on safety and the recall.

    There has been at least five significant Tesla related fires.

    The most recent Tesla garage fire to hit the news was in Toronto. The car supposedly wasn't even plugged in, so the charging system isn't likely to be a source. I'm hoping to hear reports from the fire departments investigation, because I don't trust Tesla's "fire investigations", which seem more like coverups.

    There has been at least five Tesla fires. Two Teslas caught on fire after only running over road debris. One Tesla caught on fire and EXPLODED after being in an accident in Mexico. There was a Tesla fire in a California garage, that the Tesla charger connection was ruled as a possible source of the fire by the fire department. Recently there was a Tesla garage fire in Toronto, that so far I haven't heard the fire department give a ruling. Arguably there has been scores, possibly hundreds of minor Tesla fires. There has been a plethora of Tesla charge connectors that have overheated, melted and burned. Though many Tesla shills will argue that they are not fire. Categorically and scientifically they are often classified as fire. Rapid oxidation or rapid decomposition from excessive heat is often classified as fire. Like the metaphor; where there is smoke, there is fire.

    A few months ago there was a Tesla related garage fire in California that the fire department ruled that the Tesla charging system was a possible source of the fire. The suspect portion of the Tesla charging system that the fire department in California determined was a possible source of the California garage fire, is also suspected in many other Tesla charger reported cases that Tesla charge connections have overheated, melted and burned. Tesla issued a software "fix", however Tesla charge connectors have continued to overheat, melt and burn despite the so-called "fix".

    The Tesla model S. still has defects that make it a fire hazard. Tesla charger connections are still overheating, melting and burning. Tesla batteries are poorly located and poorly protected.

    On 01/09/2014 Elon Musk said that replacement adapters that are part of the recall would be mailed out within two weeks. A month later Tesla customers still have not received the replacement adapters that are part of the Tesla model S. recall.

    Several people have been injured by faulty Tesla charge connectors. Tesla is big on making promises and hype, but short on delivery. Tesla needs to start making safety a top priority. Tesla needs to stop playing blame games and games with semantics. Tesla needs to stop lying. Tesla needs to be proactive instead of reactive. Tesla is being a follower of technology, rather than a leader. Tesla is a greedy corporation that has a disregard for safety. The Tesla model S. is an E-Pinto.

    Will Tesla's designs kill someone, before Tesla starts taking safety seriously?

  • Report this Comment On February 19, 2014, at 7:51 PM, DrDauger wrote:

    After hours TSLA trading at over $216. Yet another short squeeze to come?

  • Report this Comment On February 20, 2014, at 8:56 AM, JayShaw wrote:

    Jim, how about some links to all of this about the charger fires?

    Also, 5 fires out of how many thousand Model S vehicles? You're 1200 times more likely to die in a gasoline-powered vehicle fire than fiery wreck in a Model S. Of the vehicles that burned due to hitting road debris, the cars themselves were salvageable. Tesla replaced the battery packs and the protective armor that encases these packs and gave the cars right back to the owners. Good luck getting your ICE vehicle back after any sort of fire.

    I suggest you get your facts straight on the fires and put things in proper context instead of looking at things through your personal, potentially motive driven filter.

  • Report this Comment On February 20, 2014, at 2:08 PM, Jim5437532 wrote:

    @ JayShaw

    It seems so far none of the Chevy Volts, Nissan Leafs, or Toyotas Rav4EV sold to customers have had their batteries catch fire after running over road debris or being in accidents. 2 Tesla S have caught fire after hitting road debris and 1 Tesla S caught fire and exploded after an accident. The statistics indicate that they have better designs in regards to battery safety and Tesla.

    Almost all of the Teslas made have been recalled for a fire hazard. Yet Tesla is dragging their feet on issuing the recall. The Tesla charge connectors have been known to be faulty for about a year, yet Tesla did not issue a recall until people went to the media and government about the fire hazards. People have been injured by overheating Tesla charge connectors.

    You claim all three of them burned Teslas were salvageable. Weren't all three of them replaced? You make it sound like only the batteries were replaced.

    There are nearly 30,000 Teslas with design defects that make them potential fire hazards, yet Tesla is dragging their feet with the recall. Teslas are not safe. You settle for Tesla if you want to. Tesla is not up to my standards.

    Allegedly telling lies to manipulate the stock market is a crime. If it is a crime, I think Tesla and shills like you should be investigated.

  • Report this Comment On February 21, 2014, at 1:38 PM, Jim5437532 wrote:

    @ Franko1000

    Tesla has a disregard for safety and is an example of poor engineering.

    I think it was poor designs, to locate a large lithium automotive battery so close to the roadway with such light protection. Customers of Chevy Volts, Nissan Leafs, and Toyotas Rav4EV allegedly haven't had any fires from road debris or vehicle accidents; yet Tesla has recently had three.

    I think Tesla poorly designed some of its charge connections. Some of the charge connections seem to be not to be robust enough for the amount of current duration. Also the configuration of adapters puts an undue amount of stress on the wall outlets and connectors which can lead to outlet failures, connector failures and fires. Also the design configuration puts a lot of connections close together which allows the concentration of heat and increases the probability of fire. In my opinion they are poor engineering designs that are fire hazards.

    Tesla needs to be proactive instead of reactive. Tesla is being a follower of technology, rather than a leader. Tesla is a greedy corporation that has a disregard for safety.

    Almost all of the Tesla Ss have been recalled for a fire hazard. The Tesla model S. charge connectors were known to be a fire hazard for a bout a year, possibly more. Despite all the customer complaints, Tesla did not resolve the issue. It was only after the complaints were taken to the media and the government, that a recall was issued. Despite the recall being issued and Elon Musk promising that replacement adapters under the recall would be mailed out in two weeks, over a month later customers have not received adapters or mail notification of the safety hazards.

    Will people have to die from Tesla's poor engineering before Tesla will start taking safety seriously? Will it take a garage fire that spreads to a house and kill a family, before Tesla and Tesla fan boys wake up and smell the coffee? Tesla and Tesla fan boys seem to care more about stock prices than safety.

    If you're willing to settle for Tesla, that's your prerogative. Your standards are lower than mine.

    Allegedly telling lies to manipulate the stock market is a crime. If it is a crime, I think Tesla and shills like you should be investigated.

  • Report this Comment On February 23, 2014, at 6:44 AM, djplong wrote:

    How many people have to die??? Jum, you're clearly biased. Amashing into a tree at nearly 100MPH, as was the case in the Mexico fire, would KILL most people but the driver WALKED AWAY. There hasn't been so much as an INJURY - and no Tesla battery has "exploded", no matter how many times you repeat the lie in the comments section of every Tesla article. Ask Paul Walker about the safety of HIS $100K+ Porsche after he hit a tree. Oh - that's right - you can't - he's dead.

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I've been an analytical writer for The Motley Fool since 2011. I cover the sectors of Consumer Goods, Technology, and Industrials. Connect with me on Twitter using the handle, @TamaraRutter -- I'd love to hear from you!

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