Tesla (TSLA) is open to merging with other automakers | Hacker News Reader

Tesla (TSLA) is open to merging with other automakers

electrek.co

30 pointstosh25 comments

How? how does this work? Tesla sells a fraction of the cars that other do yet their value is absolutely insane.

So in essence you could build a company that produces a marginal product but over hype it to a point where your stock price is high enough that you can just aquire your competitor?

It's a new take on the trick that many startups pulled off in the past: grow fast enough to draw atention, then get acquired. Now, since Tesla's growth has been beyond crazy, they might do the opposite: acquire some established automaker and then, finally, Tesla will get the much needed expertise in car manufacturing business. On the bright side: maybe Teslas will finally get some polish and lose the "overpriced crap" vibe.

That was AOL / Time Warner, right?

That is how capital markets work. Information->pricing->the right to allocate capital. The market has decided Tesla is more valuable than legacy automakers.

Tesla has demonstrated execution, now they need all the manufacturing capacity they can afford.

>The market has decided Tesla is more valuable than legacy automakers.

I think a more accurate way to describe this would be "The market is speculating that Tesla will eventually be more valuable than legacy automakers."

Market is also betting on Elon to make it all happen. Only time will tell if all these speculations are sustainable over a long term - beyond Elon.

My problem with capital markets in general is that a high Tesla market cap/price does not translate 1:1 to the right to allocate capital.

Tesla doesn't see capital when shares sell in the secondary market. The company raised ~225 million in the IPO at a split adjusted price of $3.5/share. That stock is now worth $580/share and not a penny of that increase went to the company.

Similarly, the market cap at IPO in 2010 was $1.7 billion and is now $580 billion.

The company can get some benefit from high market cap and valuation through borrowing and secondary stock offerings. Since 2010, Tesla has raised about $6 billion in secondary stock sales, which can actually invested in production. But this is about 1% of the cash spent by investors to purchase public stock from each other.

> and not a penny of that increase went to the company.

I think they might have raised a bit / issued more shares since IPO (not sure)

Slightly different question: if the stock price increasing doesn't really gain the company any money, why are board executives typically concerned about share price performance? Obviously because they get paid in grants, but... are there any other reasons that actually benefit the company itself instead of the shareholders?

As I mentioned above, Tesla has issued about $6 billion worth of stock since the IPO, So it is not like there is absolutely no benefit to the company, but is just a small fraction of the amount of money that pours into the stock.

>if the stock price increasing doesn't really gain the company any money, why are board executives typically concerned about share price performance? Obviously because they get paid in grants, but... are there any other reasons that actually benefit the company itself instead of the shareholders?

Board executives represent the interests of the shareholders, not the company. The shareholders literally own the company, and can call a vote to replace the board members. Hell, if the shareholders think it is more valuable to liquidate the company and cash out, they can do it.

As an "armchair manufacturing engineer", why would they want to buy manufacturing capacity? I would think the effort to (a) install Tesla machines/people in existing rectangle buildings is not much less effort than (b)install Tesla machines/people in NEW rectangle buildings.

EDIT: Making new buildings is the easy part?

Tesla still has a ways to go in manufacturing experience, based on the build quality of our Teslas (S, X, Y). Perhaps the value isn't in the existing manufacturing machinery and building capacity, but in a workforce that already has experience building products with a focus on quality. You want those folks building Teslas. A merger with an established automaker (VW?) would be similar to an enormous acquihire by Musk (with the capital markets backing him).

Either you need to raise enough money to buy the competitor, or you need to convince the competitor of what constitutes a fair merger.

Tesla is overvalued, but either we start producing our fuel with electricity or ICE vehicles are doomed - once the price is right.

Other vehicle makers will at very least be interested in diversifying - if not going full electric.

Tesla has done lesser deals with other manufacturers before - as stated by the article - so a full on merger cannot be assumed to be the only thing on the table.

Other desirable agreements might be for things like access to technology (e.g.: batteries) or licenses for Tesla technology - although the former will be dictated largely by the relative production rates (and ramp rates) for the different pieces of all the Tesla pies.

Does anyone know how invasive the hardware for Tesla's self driving is?

I was under the impression Tesla has only made profit selling cars for one quarter since existence. Most of their revenue is from the weird money pump/merger with Solar city and carbon credits. I'm with everyone else with the confusion on the valuation. Investors seem to love TSLA even though they lose their money every car they sell. I guess they're banking on the Uber/Lyft strategy which is to dominate the market hoping that the competitors will not last(?). Equally confused with the self driving fleet strategy too. Even if Tesla figures out how to get cameras to provide as meaningful data as LiDAR, they will still be years behind. All the big players have been spending the past couple years trying to figure out how to create a robust "driver" while Tesla is spending all this time figuring out how to get useful sensor data.

Disclaimer, I work in the Autonomous vehicle industry and my opinion are of my own and not of my employer.

Edit: I would love to hear if any part of my comment was wrong rather than just being down-voted. I even double checked the profits from TSLA earning and they have had 6 (barely) profitable quarters in the past five years. None of those would of been possible without EV and/or solar credits...

You are being downvoted because your comment [reads] like it was written in bad faith. The price (although inflated imo) is representative of having some truly new tech to offer. Batteries being one where they still beat the competition, but it's not hard to see that they've been leading the EV market by a mile.

Their self-driving tech while arguably not ready for driverless car is the most advanced that you can buy today.

They are lacking in assembly and manufacturing volume. Both are areas that could be improved with an older partner with more experience in manufacturing, which is why they are open to a merger.

I wonder if the stock market likes it because it's a "purer" speculation than some other automakers.

Tesla tracks one clear proposition: the future of personal transport is electric. If you buy the premise, it's one of the most precise bets you can make on it.

In contrast, GM or Hyundai or Volkswagen are inherently hedged. If petrol drops to twelve cents per litre, they'll pivot back to V8 boats and Tesla goes bust. But that means they'll pay out less if the future is electric-- they wasted resources and time that could have been in retrospect better spent going whole hog on electric vehicles.

I wouldn't be surprised if this is part of the reason firms like Nikola can still get market traction with way more vaporous fundamentals: they're also positioned as a pure bet on that proposition.

(Disclaimer: long TSLA)

Yes. It's called "Sum of the parts" valuation. Companies sometimes break up because the market values the separate pieces more than the whole. https://corporatefinanceinstitute.com/resources/knowledge/va...

I think only Audi would make sense to be bought by Tesla. That would be VW, Audi and Porsche then.

And Seat, Skoda, Lamborgini, Bugatti and Bentley?

I’m betting Ford. They have great China penetration and have been teetering on the edge of bankruptcy for over a decade. Plus Tesla has pride in being an American automaker

Just to point out that VW group have quite a complex financial structure designed to prevent a buy-out. They were quite worried about this in the 90s, so it's mostly owned by Porsche AG (not the car company).

You don't deal with the kids, when you can get the big ones. The ones of value.

The government of Saxony owns a substantial stake in Volkswagen AG and would never allow them to be purchased by a foreign entity.

The federal state of Lower Saxony actually, and it's only about 12% [1].

[1] https://www.volkswagenag.com/de/InvestorRelations/shares/sha...

Well, VW is owned by Audi. Tesla could just slurp them at ease.

What they would do with the bean counters, I can not predict. Tesla hates beancounters, but you need them. The software part of VW, which is now their most important asset, could be of some value, but I doubt that that it would be of value to Tesla. VW is now mostly a SW company, and far behind Tesla.

Audi would make technical sense, because they have the most advanced engineers and have the best assembly lines. They are also much better than Tesla in every aspect. Esp. SW, powertrain and battery tech.

Why not Nissan? It has a market cap of about $20BN, or less than 4% the market cap of Tesla. VW by contrast has a market cap of more than $90BN. Nissan is not unionized and they already have a lot of experience building electric cars.

Although, it's much more likely Musk would like to acquire some Chinese manufacturer.

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