It’s a crazy thought, but humor me.
First, I should probably revisit some of my thoughts regarding the viability of Ford buying Tesla and what’s changed over 13 months.
A Big Price Tag
In last year’s analysis, I reasoned that Tesla would probably sell for $60 billion including debt with Ford offering upward of $300 per share for Elon Musk’s baby.
At the time, Tesla’s stock was trading around $300. Today, it’s about 5% lower. So, in that respect, not much has changed regarding Tesla’s stock price.
What has changed is the Model 3, with the first delivery to a regular customer taking place in December. Since then, it’s been high drama at Tesla headquarters as it struggles to get production up to 5,000 vehicles per week without going bust.
Tesla reported first quarter earnings May 3 that were pretty decent, but the results got lost in the aftermath of a conference call gone awry. It seems Elon Musk has a short fuse these days, but I’m sure almost anyone operating under such stress might snap under the same scenario.
“It’s certainly one of the more memorable conference calls for me, where CEO Elon Musk literally cut off an analyst for a ‘bonehead’ question, before ignoring another,” wrote InvestorPlace’s Bret Kenwell May 3.
“While many executives likely think this, most aren’t willing to say the questions are so ‘dry’ that it’s killing them. And that’s before turning to a shareholder tuning into the call from YouTube to ask a number of questions.”
The reality is that Musk has his view of Tesla, and that’s the only one that matters. He believes that it will hit 5,000 Model 3s by the end of the second quarter and be profitable and cash flow positive after that.
You might not agree with his view, but I don’t think he cares. That’s what I love about him. Most CEOs are so busy kissing butt they forget their job is to build a great business.
Price Tag Revisited
In my April 2017 article, I pegged Tesla’s enterprise value at $54 billion. Today, it’s almost $4 billion higher because of additional debt and reduced cash.
Let’s assume Ford CEO Jim Hackett catches Musk on a good day and manages to convince the billionaire to sell for $330 per share plus the assumption of debt.
Ford would be looking at swallowing Tesla for $65 billion or 1.5 times its current market cap. That’s a lot of cars it would have to sell.
A Contrarian Thought on Ford Stock
Historically, interest rates are still very low, so most people would assume Ford would finance the majority of a Tesla acquisition. That’s especially true given Ford stock is about one-third of its value from its heydays in the late 1990s.
Well, I say to heck with convention.
Ford’s got 4 billion shares outstanding. Its stock has done absolutely nothing over the past 15 years. Why not dilute the heck out of shareholders by paying for the whole thing in stock?
It would slightly more than double the shares outstanding but give it a potent one-two punch between the F-Series of trucks and other SUVs and Tesla’s three current electric vehicles, plus whatever Ford can bring to the table in that department.
Personally, I see Tesla being successful. Elon Musk surely does, too. He probably wouldn’t sell, but once Tesla turns profitable, Ford has absolutely no hope.
It’s now or never if Ford wants to buy Tesla.
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As of this writing, Will Ashworth did not hold a position in any of the aforementioned securities.
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