Will GM or Ford buy Elon Musk's Tesla in 2014? | Hacker News Reader

Will GM or Ford buy Elon Musk's Tesla in 2014?

usatoday.com

9 pointsdeadfall15 comments

Buy it with what? GM and Ford have market caps of $60B. Tesla has a market cap of $20B. It couldn't be an acquisition, it would have to be a merger. A merger would:

- put Elon Musk de facto in control of Ford/GM, as by far the largest shareholder;

- give people who are now holding big chunks of Tesla stock big chunks of Ford/GM stock.

I can't imagine Ford/GM being happy about #1, and I can't imagine Tesla shareholders (including Elon) being happy about #2.

Tesla's P/E ratio is literally 1000-1[A]. Most of that market cap of $20B is based on expectations that Tesla is going to have hockey-stick growth rates over the next 5-10 years. So in order to keep that stock price, they need to go gangbusters - "we sold more cars than last year" is bad news for them because investors are counting on them to like double or triple sales. A sustained anti-Tesla campaign (which you'll notice is already underway) combined with a few minor setbacks could cause some big stock price losses and make Tesla a more attractive buy.

Personally though, I don't think it's that likely that Tesla will be acquired in the near term. The only reason the article gives is "GM sucks at making electric cars for consumers" and buying Tesla would help GM solve that problem. But the fact is that Tesla hasn't yet solved the real problem either - they can build kickass electric sports cars and luxury sedans, but that doesn't necessarily translate into a viable consumer car. Ford and GM have tried selling consumer-model electrics and they've failed because of budget - when you try to build an electric car with today's tech for $30K (the average US new car price) you wind up having to make a lot of compromises, even accounting for the generous tax credit. Ford and GM are building inadequate electric cars at roughly the $30K pricepoint, while Tesla's building a great electric car at twice the price. Tesla's doing a lot of clever engineering and making good cars, but it's not really clear to me that "cut the Model S's price in half" is so much easier than "make the Volt/Leaf/etc. not suck" to justify a buyout/merger.

[A] - Stock price divided by this quarter's project earnings per share.

As usual, you can't take new technology and expect to instantly engineer it into a mass-market solution, and it certainly won't work if you then do a half-assed job. That, frankly, has been GM and others approach to electric cars.

Tesla is eating up a large part of the global lithium production and is contracting with Panasonic and others to source massive numbers of custom batteries. Panasonic then goes and builds factories, a supply chain, etc. The massive scale here is what will drive cost reductions across the board. Some estimates are that Tesla is already only paying 100$/kWh of raw battery capacity.

How do you figure your first point?

Musk owns 27.1% of Tesla as of their most recent 10Q. Today's closing market cap is $19.06B, putting Musk's share at $5.16B.

GM's market cap is $56.75B. Assuming no 'synergies' between the merged entity, the combined cap should be around $75B. Musk's $5B worth of Tesla would make him a 6.67% owner of NewCo.

For comparison, the UAW owns 140M shares (10% of GM) and the Canadian Government owns 110M shares (7.5% of GM), putting their ownership of NewCo at 7.6% and 5.6% respectively. Numerous institutional investors would also have single-digit percentage ownership.

The story at Ford would be slightly different since they don't have the big slugs of ownership, but their market cap is very similar to GM's, easily preventing 'control' of the entity to fall entirely on Musk.

doesn't the Ford foundation and/or the Ford heirs have significant ownership on Ford?

They've actually divested significantly in the past few decades. They still own something like 40% of the voting shares, but only 2% of the common.

I doubt that very much. I don't think Musk is interested in a pile of cash anymore - he's already got more than he'll ever need. Changing the world seems to be his current game plan.

The only way I see him selling is if he feels the cash might help him get the hyperloop off the ground - the hyperloop and tesla seem to be linked though so I still think its unlikely.

I do not see this happening. One of the main reasons Musk created Tesla was to remove the middleman, that being dealerships, and to be able to sell directly to the customer. If that buyout were to happen, that would completely contradict that main principle of Tesla.

EDIT: At the time of my comment, I forgot about the legalities of buying publicly traded companies. It's something I don't particularly follow.

Wait, principle? How does that have anything to do with whether this happens? Tesla is a public company.

edit: per http://www.businessinsider.com/elon-musk-borrows-150-million... it looks like Musk, holding 65%, would be able to block any hostile acquisition.

Big Difference between 'principles' and 'capitalism'. Ulitimately if GM or whoever offers enough for Tesla then it will be sold... even if the founder doesnt want to sell for personal reasons publicly traded companies are under some restrictions as far how they respond... even beyond legal restrictions if the offer is good enough the stock holders will revolt

No, Musk started Tesla to force the transition to electric cars. He has already succeeded at that. A buy-out would give Musk the ability to cash out his own shares to keep SpaceX going, if hardships are encountered.

(Disclaimer: I don't own any Tesla stock.)

Tesla has the potential to be GM. I think Musk knows that.

In 10 years the 30k USD electric sedan will be affordable and everyone will want one because it will be safer, faster 0-60, cheaper to maintain, and cheaper to charge than a comparable gasoline sedan.

Form and GM would need Tesla(technology, talent). But does Tesla need Ford or GM(diffused operations, liabilities,redundancies, old generation talent)? Nope- Therefore unlikely

Don't see it happening, just based on Musk's personality and his strong control of the company/board.

Google will buy it and build a self-driving, electric car... I do hope that Elon Musk keeps Tesla though.

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