A recent research note from FBR & Co. tech analyst Daniel Ives has Apple (NASDAQ:AAPL) investors all atwitter. The note contained the names of four respectable companies apparently on Apple's short list of large-scale acquisitions for the near future. But when it comes to one of those names on the list, pricey auto giant Tesla Motors (NASDAQ:TSLA), a blockbuster Apple buy probably won't happen for a variety of reasons.
Tune in as Motley Fool analysts Sean O'Reilly and Dylan Lewis dive in to a discussion about the current status of Tesla, and why it's probably not a good fit for Apple.
A full transcript follows the video.
This podcast was recorded on Dec. 11, 2015.
Dylan Lewis: And so the second one on that list, Tesla, market capital of $30 billion, current price-to-sales of 7.5. Sean, you know the industrials and car manufacturing space a little bit better than I do. You want to take this one?
Sean O'Reilly: I do. Currently not profitable. Tesla, as you mentioned, has a market capital of about 30, it's actually $29 billion. This is, this $30 billion market cap has made everyone's favorite Iron Man-like billionaire, Elon Musk, put him on the Forbes list with a net worth of 8, 9, $10 billion all basically on the backs of the success of the Model S, which, of course, has actually broken all records in terms of quality by Car and Driver. They got the first perfect rating. And future growth, and this relates to one, the Model X, which is going to come out next year, and that's got those hip, cool falcon-wing doors. Have you ever seen those?
Lewis: No, no.
O'Reilly: I'm going to show you photos later, and you're just, you know, like, what? Like, supposedly, it saves space. Anybody that's curious go to Google Images, type in Tesla Model X, and you'll see what I'm talking about. It also protects you from the rain.
And really, the big enchilada is actually not a big enchilada at all; it's actually rather small. It's their smaller version, and it's going to be the Model 3. It's going to come out in 2017. We'll get to see a model of it next year, and it's going to be priced at about $35,000 -- which is surprisingly reasonable for a Tesla.
Lewis: Yeah, by their standards, that's, like, mid-market.
O'Reilly: Like, yeah, and it's $35,000. Believe it or not, analysts are surprisingly bullish on the potential profits we had with the release of the mass-market Model 3. I couldn't believe this, and you're a shareholder, correct me if I'm wrong.
Lewis: I am, yeah.
O'Reilly: So you tell me if you buy into this. But they're supposed to earn $8, $9 per share by 2019. Wow.
Lewis: It's ambitious.
Lewis: I'd love to see it.
O'Reilly: OK. This, Elon Musk is supposedly going to take a less active role once the Model 3 is out there and rolling. If the company were to be sold, it would actually be after that point. Given Musk's actual lack of interest in actually making money, which sounds crazy for a billionaire, I just don't see this happening.
Lewis: Yeah, I think it's a tough sell for a lot of reasons. I mean, you look at market capital alone, so they're currently trading somewhere, they'll give them, like, a $30 billion market cap. You think about the premium that Apple would have to pay on top of that to be able to take the shares off the market.
O'Reilly: It'd be crazy.
Lewis: It'd be crazy.
O'Reilly: We're talking 50, 60 billion, I don't know.
Lewis: Yeah, easily. And another thing to keep in mind here is the margin profile for the automotive industry is totally different than the margin profile for consumer tech, right?
O'Reilly: On top of that, Apple's already designing their own car, supposedly. So I don't know, would they just buy it for the technology, which is arguably awesome? I don't know.
Lewis: Yeah. And the speculation with the Apple car is, do they want to get into the actual nuts and bolts of making cars, or do they just want to provide the in-car platform that people would use?
O'Reilly: And then partner.
Lewis: We just don't really know what those ambitions look like. But again, they have their own initiative in place, and Tesla would be an extremely expensive acquisition for them.
O'Reilly: You hear all those rumors, too, about Tesla stealing employees from Apple all the time.
Lewis: Like, "Hi, guys, we just bought you."
O'Reilly: Welcome back.
Lewis: "Oh, there's Jim again, look at that."
O'Reilly: Not likely, but fun to think about.