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The Apple and Tesla conundrum
Posted on May 16, 2017 by Matt Pressman
Whenever Wall Street talks about Tesla [NASDAQ: TSLA] invariably some comparison to Apple [NASDAQ: AAPL] seems to arise. Bulls and bears alike use this comparison to prove a point. Perhaps its best to see it from both sides. Morgan Stanley's Adam Jonas questioned Tesla's competitive edge yesterday and Barron's ran the headline, "What if Apple becomes Tesla before Tesla becomes Apple?" Jonas argues, "The bull case on Tesla is that it can become the next Amazon or Apple. We see such firms as competitors ultimately." Jonas has run hot and cold on Tesla for years. But, is he onto something?
Above: Tesla and Apple are often tied to one another (Image: Smarter Analyst)
Auto Evolution provides context: "No matter how much Tesla has grown over the past four years (its value has increased tenfold, if you need to ask), it's still only a sardine compared to the shark that is Apple. The Cupertino company now has a cash reserve of over a quarter of a trillion dollars. That's $256.8 billion, to be exact, ready to be spent at any time." That means Apple could buy Tesla three times over in cash.
Above: Could Apple be looking at a Tesla takeover (Youtube: Wochit Business)
In fact, Morgan Stanley's Adam Jonas outright asked CEO Elon Musk (during TSLA's Q1 earnings call) about the possibility of Tesla being acquired by Apple. Musk was coy in his response: "Yeah, I don’t think they want to have that conversation. At least I’ve not heard any indication that they do. Obviously Apple continues to make some great products and, yeah, I mean, I use their phone and their laptop, it’s cool." Nevertheless, last week, Citigroup actually cited Tesla as one of Apple's seven possible acquisition targets. Hmmm.
Above: Tesla is cited as one of Apple's seven possible acquisition targets (Image: CNBC via Citi Research)
Regardless of whether an acquisition is in the works (we doubt it), the comparisons between the companies continue to run rampant on Wall Street. Last week, billionaire venture capitalist Chamath Palihapitiya spoke at the Sohn Conference and made some waves when he noted that Tesla could be worth “hundreds of billions” of dollars in the next decade. Why? Palihapitiya explained: "a historical analog... [with] another company very similar to Tesla. I wanted to explain to you our view of Tesla in context to another company you already know — Apple.”
Above: The Tesla Model 3 launch was nearly as big as that of Apple's original iPhone (Source: Bloomberg)
Drawing some parallels, Palihapitiya said that Apple's "iPhone was an unbelievable feat of technology, of engineering. What this product did was capture consumer innovation and it created a tailwind of demand. Is Tesla running the same playbook? What we do know is the early traction of Tesla is tracking close to Apple. That third iteration [of the iPhone] is what broke down the walls for consumer demand. The S and the X have set the stage for Model 3." And Palihapitiya has an impressive track record of picking breakout companies — last year he pitched Amazon stock at the Sohn Conference which is up about 40% during the last 12 months.
Above: Many see parallels in the visionary leadership styles of Steve Jobs and Elon Musk (Image: Apple Car Fans)
In addition, the research team at Loup Ventures also discussed intriguing parallels between Tesla and Apple. But, the Loup Ventures team takes a more measured approach explaining that: “Tesla is not a car company,” but rather, “It’s an operating system for sustainable energy that combines a powerful brand, a visionary founder, integrated hardware and software, and a halo effect all with the purpose of transforming a combination of large markets.” That said, the analysts conclude that ultimately, “TSLA might be the next AAPL, but Tesla will forge its own path and the world will be better for it.”