Apple would be the front runner amongst its fellow tech giants at making a successful bid to buy reeling automaker Tesla, according to Gene Munster, founder of Loup Ventures and longtime Apple analyst.
The potential scenario of Tesla being acquired attracted renewed attention this week when news broke that Apple reportedly bid $240 a share for Tesla back in 2013. Tesla shares have tumbled now to roughly $197 a share, although taking into account the additional shares Tesla has issued and the debt it's taken on means an acquisition now would still cost significantly more than it would have in 2013, as Real Money columnist Timothy Collins pointed out.
Munster told TheStreet that if Tesla were to be bought now, he thinks there's a 50% chance that the buyer ends up being one of the deep-pocketed tech juggernauts with an interest in electric and autonomous vehicles -- Apple, Alphabet or Amazon. And among those three, "I think it's probably 60% [it would be] Apple, 30% Google and 10% Amazon," Munster said.
In a note on Thursday, Munster and fellow Loup analyst Will Thompson lowered their 2019 vehicle delivery estimates for Tesla by roughly 10% from 340,000 to 310,000 vehicles because of risks to its sales in China owing to the trade war between China and the U.S.
Munster's case for Apple being the favorite to take out Tesla rests on three arguments:
1. Apple Has a Good Fit With Transportation
"They have, first, an interest in transportation," Munster said. Apple is developing its own electric car project called "Titan," into which the tech behemoth is devoting significant research and development. Apple is somewhat behind other tech players in transportation and so may be willing to spend money on acquiring Tesla, Munster said.
Apple could also leverage its expertise in artificial intelligence to create a successful vehicle. Munster noted Apple has poached some former Tesla employees to work on AI, an element which is likely central to the future of transportation. "They've made progress in their efforts in AI, in part because of their hires," Munster said of Apple. AI has a natural application to help provide road vision for autonomous vehicles.
So why not Alphabet, which also owns self-driving technology company Waymo, and is a leader in AI technology? "[Tesla] needs a very eloquent software solution," Munster said, adding that "the iPhone [OS] is more elegant than Android."
2. Apple Can Make Tesla Profitable
Tesla has not yet been able to consistently turn a profit, begging the question of how Apple could help it to make money.
Apple would have big cost synergies by merging its AI and design workers with those of Tesla, eliminating the need to add lots of employees, according to Munster. Plus, "Apple has a more judicious management process [than Tesla's] that would bode well towards getting Tesla to profitability," Munster said. "I think you have systematic approach to securing supplies and manufacturing at scale."
Munster estimated that 60% of the cost efficiencies of Apple buying Tesla would come from eliminating redundant employees and resources, and 40% from operating more efficiently.
3. Apple Has the Money
When asked whether Apple buying Tesla is financially feasible, Munster simply said "yes."
And when one examines the numbers, it's not hard to see why. Assuming a 20% premium over Tesla's current market price would bring the offer value to about $41.2 billion, while assuming Tesla's $9.8 billion in debt would bring the the total transaction value to about $51 billion.
For its part, Apple has a whopping $225 billion in cash on hand, debt of just $133 billion and net cash (cash minus debt) of $112 billion.