Tesla and Apple: One of a Kind?
Tyler is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Apple (NASDAQ: AAPL) lost a great leader in Steve Jobs, but his vision for Apple still remains--make great products. Tesla (NASDAQ: TSLA) seems to be carrying out Elon Musk's (Tesla's CEO) vision to "change the world." Both of these visions are easier said than done, but both companies have managed to develop one of a kind products. What does their future hold?
Like minded companies
Both companies have massive visions and great leadership. Elon Musk has been everywhere lately. It's true that these companies don't have a whole lot in common besides their vision and great leadership, but they might have more in common than you think.
Apple will be a lot more involved in cars over the next year or two, as BMW will implement Siri Eyes Free in all of its 2014 models. If Apple is bringing great products to the auto industry, what else is it willing to do?
Tesla has already started to revolutionize the industry with its electric vehicles. Elon Musk was asked about the potential of being acquired in May of this year. His response? "That’s one of the possible outcomes, I suppose." When asked specifically about Apple, his response wasn't exactly negative. "They do have a lot of cash. I’d guess it would come from outside the auto industry. It would be a buyer with a very large cash position.”
Tesla is too expensive
Elon Musk is aware of this. For most companies, it wouldn't make sense to acquire Tesla. "From the perspective of a large [automaker], Tesla just seems very expensive,” Musk said. “How many cars do we make? What’s our market cap? It seems nutty to them.” Yes, it would. No argument there.
But what if a company had, I don't know, $150 billion laying around (like Apple), and had a vision of making great products. Would an acquisition then make sense? Maybe. Here is the point. Apple has the cash, and Tesla makes great vehicles. If Tesla already makes great products and Apple has the funds available to them, wouldn't an acquisition help both sides?
Is it a win-win?
Tesla would suddenly have the backing of a company with millions of "cult-like" followers. Apple would have positioned itself, with minimal risk, to dominate yet another industry. What would be the asking price? Who knows, but it would likely be more than Tesla's $14 billion market cap, which has increased approximately 20% in the past two weeks.
Although I think both companies could benefit from this, I don't see it happening in reality. Apple doesn't have a history of making large acquisitions, and it would likely cause confusion among customers. What would the vehicles be called? Would they stick with the Tesla brand, or have "iCars" driving around? It is interesting to think about, but we should probably focus on what these companies can provide to investors right now.
Should you buy in?
That's up to you, but both companies offer something completely different to investors. Apple provides a solid company, with a great history. The stock is cheap, as it currently shows a 10.1% earnings yield, 11.3% free cash flow yield, and a P/E of 10.
Apple's stock has fallen nearly 32% in the past year. However, even with a falling stock, the company plans on releasing $100 billion to shareholders by 2015. It is expected to be largely in the form of dividends, an area in which the company already shows a 2.6% yield. Is that what you are looking? If not, you might find Tesla more appealing.
The metrics aren't there for Tesla. It's simple, they are young, fairly un-established, and still pretty volatile (in comparison to a company like Apple). Yes, you could measure Tesla by free cash flow, P/E's, and other typical measurements, but that wouldn't make sense.
As an investor, I want a young company like Tesla to be putting money toward growth. How do they sell more cars? How do they build their brand? I want to see Tesla's capital expenditures increasing dramatically at this stage. And boy have they. In the past five years, capital expenditures have increased by 2,420%. As a result, its stock has increased over 290% over the past year.
The bottom line
Although I don't expect Apple to purchase Tesla, it could be wildly successful if both companies agreed. I expect Tesla to stay independent, despite a growing relationship with Google. If Google doesn't buy it, Apple might be the next best match.
Currently, these companies offer something completely different to investors. Tesla is expensive, Apple is cheap. Apple should become a very solid dividend stock, while Tesla's growth has been phenomenal. Apple is very well established, Tesla is just gaining traction. I can't tell you what is best for you, but these companies both offer something appealing for the right investor.
Apple has a history of cranking out revolutionary products... and then creatively destroying them with something better. Read about the future of Apple in the free report, “Apple Will Destroy Its Greatest Product.” Can Apple really disrupt its own iPhones and iPads? Find out by clicking here.
Tyler Wofford has no position in any stocks mentioned. The Motley Fool recommends Apple and Tesla Motors . The Motley Fool owns shares of Apple 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. Is this post wrong? Click here. Think you can do better? Join us and write your own!