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Tesla Benefits from Apple Rumors

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Shares of Tesla Motors, Inc. (TSLA) surged to an all-time high of $206 before closing at $203.70 on Feb 18, after rumors circulated about a possible takeover by Apple Inc. (AAPL). The rumors were a result of a report by The San Francisco Chronicle that Apple’s mergers and acquisition chief, Adrian Perica, had a meeting with Tesla CEO Elon Musk in Cupertino, CA in the spring of 2013.

Although the nature of the discussions between the two is not known, the report stated that the meeting suggests that Apple is interested in buying Tesla. It also stated that Musk might have met Apple CEO, Tim Cook, as well.

Neither company commented on the speculation. However, it is worth noting that Musk had announced his intentions to stay with Tesla for many years, in an interview with Bloomberg last year. However, the Tesla’s CEO seemed open to its acquisition by non-automobile companies.

While Apple and Tesla are involved in completely different businesses, both companies are known for their innovative products that appeal to the tech-friendly crowd. The common target audience might make an acquisition seem lucrative as the presence of Apple products in Tesla’s car would appeal greatly to this target group.

However, most analysts believe that collaboration between the two companies is a more likely outcome than an acquisition. Automobile companies have a small profit margin, which might not appeal to Apple. Moreover, the meeting took place a long time back. Thus, the probability of an acquisition seems low.

However, it is possible that Tesla might join forces with Apple to incorporate the latter’s operating system or entertainment products in its cars. Apple is already in talks with several automobile manufacturers to incorporate its operating system, iOS, in cars.

Apart from the Apple rumor, Tesla’s stock was also driven by the expectations of an earnings beat, when the company reports its fourth-quarter 2013 results on Feb 19. Tesla recently revealed that vehicle sales in the quarter were 20% higher than estimated. The company sold and delivered 6,900 vehicles in the quarter, an improvement on its guidance of 6,000 units.

Tesla currently carries a Zacks Rank #1 (Strong Buy). Some other stocks worth considering in the auto industry are Volkswagen AG (VLKAY) and Dongfeng Motor Group Company Ltd (DNFGY), both of which carry a Zacks Rank #2 (Buy).

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