Over the years, speculation about Apple (NASDAQ: AAPL) acquiring Tesla (NASDAQ: TSLA) has been rotating periodically. Perhaps the most notable example was when reports emerged in 2014 that Tesla’s CEO, Elon Musk, had met with Apple’s head of mergers and acquisitions (M&A), Adrian Perica. This is also the period of time when Apple started Project Titan, its electric vehicle program that saw renewed investor interest after a recent report from Reuters that the Mac maker is targeting launch in 2024 or 2025.
It turns out that Musk really tried to make a sale to Apple, but it was much more recently.
Tesla started delivering Model 3 at an event in mid-2017. Image source: Tesla.
Tim Cook “refused to accept the meeting”
The source of the news this time is not a speculative media report, but Musk himself. The eccentric billionaire shared the anecdote directly on social media, saying he tried to contact Apple CEO Tim Cook while Tesla struggled to increase production of the Model 3. Musk consistently described this period as “production hell”, already that Tesla was entering the dominant segment of the automotive market.
During the darkest days of the Model 3 program, I contacted Tim Cook to discuss the possibility of Apple acquiring Tesla (for 1/10 of our current value). He refused to attend the meeting.
– Elon Musk (@elonmusk) December 22, 2020
To put it in context, Tesla started production of the Model 3 in mid-2017, but faced a plethora of operational challenges around manufacturing as well as deliveries. By the end of 2018, the electric car maker had solved many of the production problems, but then progressed to “delivery logistics hell,” according to Musk. That last problematic stage lasted until mid-2019 or more.
It is very likely that the “darkest days” that Musk refers to were between mid-2017 and the end of 2018, during which Tesla’s notoriously volatile shares were traded mainly within a range. For a year and a half, the company’s market capitalization fluctuated around $ 60 billion, which is about 1/10 of Tesla’s current market capitalization, of more than $ 600 billion.
TSLA market capitalization data by YCharts.
The revelation came after Musk revealed last month that Tesla arrived “about a month” after the bankruptcy during the Model 3 ramp. The story also recalls when Musk tried to sell Tesla to Alphabet Google subsidiary in 2013, while the company tried to increase production of the Model S, as Musk is a personal friend of Google co-founders Larry Page and Sergey Brin.
In a frightening parallel, Tesla’s market capitalization was just $ 6 billion at that time – about 1/10 of Tesla’s valuation during the Apple episode. That’s twice what Musk sought for an acquisition during difficult times, was able to survive and then saw Tesla’s valuation rise tenfold. Don’t expect that to happen again, as another tenfold jump from here would amount to a $ 6 trillion market capitalization.
Tesla has finally managed to increase production and deliveries of the Model 3. (I left out 2020 on this chart, as the company now aggregates the metrics for the Model 3 and Model Y due to the similarities of the vehicle programs.)
Data source: Tesla. Author’s graphic.
As Apple moves forward with Project Titan, manufacturing will be among the biggest challenges. Many experts have long hoped that the technology giant will take advantage of its long-standing strategy of outsourcing production to third-party manufacturers, although this practice is less common in the automotive industry than in consumer electronics.
Too expensive before and now
Considering Apple’s tendency towards small acquisitions as opposed to large and loud ones, it is not surprising that Cook was not interested in a $ 60 billion purchase. That would be 20 times greater than its biggest acquisition so far (Beats for $ 3 billion in 2014).
This is especially true when you recognize that Tesla was negotiating with a significant premium for old car manufacturers at that time, a discrepancy in valuation that has now reached comic proportions.
TSLA PS Ratio data by YCharts.
At the risk of stating the obvious, it is inconceivable that Apple would even flirt with the idea of buying Tesla today for more than $ 600 billion. As much fun as it is to imagine an Apple-Tesla merger, investors should probably let the chimera die.