Please ensure Javascript is enabled for purposes of website accessibility

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

By Tamara Walsh - Feb 19, 2014 at 4:33PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Forget an outright merger between Apple and Tesla Motors; there could be a more lucrative collaboration between the two tech giants on the horizon.

Tesla Motors (TSLA -2.05%) is no stranger to speculative press. However, the latest theory that tech giant Apple (AAPL -1.51%) might acquire the electric-car maker are both outdated and wildly overblown.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 (SCTY.DL) 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.

Tamara Rutter owns shares of Apple and Tesla Motors. The Motley Fool recommends Apple, SolarCity, and Tesla Motors. The Motley Fool owns shares of Apple, SolarCity, and Tesla Motors. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Apple Inc. Stock Quote
Apple Inc.
AAPL
$171.52 (-1.51%) $-2.63
Tesla, Inc. Stock Quote
Tesla, Inc.
TSLA
$890.00 (-2.05%) $-18.61
SolarCity Corporation Stock Quote
SolarCity Corporation
SCTY.DL

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
397%
 
S&P 500 Returns
128%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 08/19/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.