Potential Landing Spots For Tesla Motors

Tyler is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Tesla Motors (NASDAQ: TSLA) has been in the news more than most companies recently, but what company wouldn't be with a share price increase of 294% in the past 12 months? It's hard to imagine this trend continuing for an extended period of time, especially with the stock trading at 15 times sales, meaning growth is already priced into the stock. The question is, are any companies willing to pay an expensive premium for a company growing as rapidly as Tesla?

Tesla's becoming more and more expensive

Investors may still be willing to pay for its stock, but the expense of buying Tesla would require some serious cash. Tesla's market cap grew more than 332% in the past year, and is currently at $14.1 billion. The company expects continued growth, as its outlook for Q2 says, "We expect to be roughly break even on cash flow from operations in Q2, despite launch costs in Europe and a huge increase in service centers, stores, and Supercharger stations." Tesla will release its earnings in the middle of August, and only then will we know what these figures actually are. What are the most sensible options for Tesla?

Elon Musk has made it clear to companies that he is not opposed to selling Tesla. This past May, he was asked about the potential of being bought out, and his response led many people to believe that there is interest from him--"That’s one of the possible outcomes, I suppose." 

So, if there is interest for him, what companies have the cash to buy Tesla, and would make the most sense?

Apple (NASDAQ: AAPL) has roughly $150 billion in available cash--far more than enough to purchase a company like Tesla. Elon Musk was asked specifically about this possibility, and again left the door wide open. "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."

In Apple's quarterly earnings call earlier this week, Tim Cook dropped several clues about its desire to become more involved with vehicles when he said

Having something in the automobile is very, very important. It's something that people want, and I think that Apple can do this in a unique way and better than anyone else. So it's a key focus for us.

A recent patent filing of an Apple dashboard could be what Tim Cook was talking about, but there may be more to the story. "Apple can do this in a unique way and better than anyone else," Cook continued. Right now, Tesla has remarkable cars, and outstanding ratings. Jake Fisher, Consumer Reports’ director of testing, says Tesla's Model S, "Performs better than anything we’ve ever tested before. Not just the best electric car, but the best car. It does just about everything really, really well."

Apple wants to be the best, and Tesla already is. If Apple doesn't have an interest in Tesla, let's look at why Google might. 

Google

Google (NASDAQ: GOOG) would also make sense, considering their advancements in driver-less cars. Google has already equipped its driver-less car technology on hybrid vehicles such as the Toyota Prius. Owning a company such as Tesla would surely boost Google's accessibility for test vehicles, as it would already own the vehicles and not have to purchase them.

Google isn't the only company that is actively seeking driver-less and autonomous vehicles, but it does receive most of the attention. With these efforts, it becomes obvious that Google wants to expand into new areas, despite providing results for over 5 billion searches each day. Like Apple, Google has the cash to purchase Tesla. Although it's not $150 billion like Apple, Google's mountain of cash is worth $50 billion. 

Considering Google has the money and is already involved in creating innovative vehicles, wouldn't a Tesla acquisition make sense for Google?

Valuation

Considering that neither of these companies have acquired Tesla, and may never, it is important to look at them as separate companies. The tables below will give valuations as well as what a potential investor would be purchasing (or selling).

Company    P/E      FCF Yield     Earnings Yield        EPS       TTM Revenue     Gross Margins 
Apple     10.5           10.7%                9.1%     40.1    $169.4 B         38.3%
Google     25.6         4.3%             3.9%     34.5      $53.5 B         57.4%

The bottom line

Elon Musk has clearly left the door open for a potential buy out, but it is up to these other companies to make an offer. Tim Cook made it obvious that Apple wants to engage in the auto industry more than they previously have, and Google is already involved in making innovative vehicles. Both companies have the cash to buy Tesla, but are they willing to purchase Tesla considering its growth in recent months? Only time will tell. 

 

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Tyler Wofford has no position in any stocks mentioned. The Motley Fool recommends Apple, Google, and Tesla Motors . The Motley Fool owns shares of Apple, Google, 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!

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