20 Feb 2014

What If Apple Bought Tesla?

Rumors about Apple showing interest in buying Tesla have resurfaced after the SF Chronicle reported that Apple’s M&A chief met with Elon Musk last spring. Considering Tesla’s market capitalization of more than $24 billion, such a deal would be unprecedented for Apple, but the two companies do appear to have a lot of potential synergy.

As a thought experiment, let’s take a look at a few of the reasons Apple acquiring Tesla might make sense.

Apple has the cash for it

Apple still hasn’t found an ideal solution for its $160 billion cash hoard. Over the past year, the company has bought back $40 billion of its own shares, with plans to repurchase an additional $20 billion. That’s more than enough to have purchased Tesla outright. While there’s a certain sensible arrogance for a healthy company like Apple believing that repurchasing its own stock is the best investment of its cash, Tesla is poised for near-limitless growth if it can disrupt the automobile industry.

A trillion dollar opportunity and a “new product category”

The car market represents exactly the kind of industry that Apple would be interested in – high-value and slow to innovate. Tesla’s Model S could make the same kind of shake-up that the iPhone inflicted upon the mobile phone industry when it arrived in 2007.

Investors have been unhappy with slowing growth rates for Apple’s iPhone and iPad businesses, and the Mac seems destined to become a niche device. The company needs a new market to go after to keep up its impressive gains and win back investors.

Apple CEO Tim Cook has repeatedly mentioned the company’s interest in expanding to new product categories. While automobiles might seem far-flung from consumer electronics, cars have actually become the ultimate gadgets. The connected car has been a hot sector for tech companies as they work with manufacturers to incorporate software and hardware into vehicles. Apple announced its “iOS in the car” initiative at WWDC last year to bring its mobile OS into dashboard systems.

Sure, Apple could get into the TV or wearable categories, but wouldn’t electric cars be so much more fun?

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