Why doesn't TESLA (TSLA) just buy Honda, Ford or GM?

Reasonable question. Tesla is significantly overvalued, I work at and am overall generally bullish on big tech companies. Tesla is a car manufacturer which due to Elon Musk’s charm/background has made people believe it’s the next Google/Amazon. The assumptions you would have to believe to justify its current valuation (which has lost about 25% in a week or two, not showing a lot of resilience) are pretty implausible. IF it were to make an acquisition bid with a stock swap, first of all the shareholders of the acquisition target would demand a huge premium for the much higher beta TSLA stock, perhaps 100% of the current price. Furthermore so much of its valuation is based on Tesla’s expected return on capital and by increasing its assets that much and being seen as a “manufacturing company” - which IMO it is - it would be more likely to trade around those multiples which are significantly lower than it is now. I believe the company has a bright future and will hit sustainable profitability, but it’s a car company and should likely have a valuation of ~10% of its current market cap.

What would be the point? There would be nothing to gain for Tesla from doing that.

To not go into a lot of detail there is a two things to quickly point out

A) Your share value from 140 to 380 is totally incorrect. The company did a huge stock split so that 380 is actually around 2000 if you take on a like for like basis.

B) There are so many flaws in the thinking I don't even know where to start but to keep answer as short as possible

- They can only buy a company with cash or shares. They don't have cash and issuing shares would significantly dilute the value of the company and I really doubt someone like Ford or Honda would want Tesla shares so it wouldn't even be an effective medium.

Nevermind the fact that you need a willing seller in terms of Ford or Honda and that would require quite a premium on the current trading price and would have to go through shareholders.

Trying to keep it as simple as possible but it's just not something possible for Tesla at the moment ...

Obviously why they would buy a competitor that the whole theory is they think are obsolete is obviously a totally different story

They are scaling up reasonably well at a rate faster than any car company ever has. But they may be buying some of those internal combustion car companies with dwindling sales if/when they enter bankruptcy.

Musk is a visionary genius. He's not that good at building cars. JD Powers ranks Tesla worst in problems of all car manufacturers at 250 problems per 100 vehicles. In fairness though, Mercedes, Audi, and Volvo weren't much better. But still... last?!

In the 1980s, a term was coined that fits Tesla... vaporware. It's a product or software that's announced but not produced and sometimes will never be produced. Tesla is flying high based primarily on the incredible vision and charisma of Elon Musk and the vision of what the company might do in the future. It wouldn't serve Tesla or Musk to dilute that genius by building more cars.

the mere fact he didn't know about the stock split should nullify him and his opinion wholly.

You might be on to something. Thanks!

Why doesn’t Tesla, the largest auto manufacturer, just eat the other companies?

https://youtu.be/PVQO76I0Sh0

Where your dreams get trolled

Yes, it simply wouldn’t work for either party for reasons already explained.

Tesla’s huge valuation is due to a combination of primarily 3 three things.

1) The Tesla is an impressive car that many see as the future of automobiles, and despite some build quality issues they have perhaps the most loyal consumer base behind maybe only Apple.

2) Elon Musk is seen as this visionary, and that he will stop at nothing to ensure Tesla’s success. Although he’s had his “strange moments”, he was basically responsible for sending the first manned mission to space in years. The stock started its latest surge shorty after that, even though Tesla had nothing to do with it.

3) The herd mentality. People are buying Tesla stock, simply because it’s going up. Many have no clue about the P/E, or their cash position, and it doesn’t matter because they simply believe it will keep going up. They believe it will be the next Amazon or Apple, but personally I don’t see them being able to corner the auto market they way those companies have dominated theirs.

Honda and GM have just this last week linked up on a strategic level, perhaps acknowledging that they have both fallen behind in electrification of auto platforms. Tesla's biggest strength is scaling battery technology and promoting proliferation of storage in ways that encourage a new vision for generation and the grid. Musk is a kook but he has pushed from the outside in ways that industry insiders have seemed unable to. In that way he's a visionary.

why doesn't FloSports just buy Letsrun?

Another point is that ALL the other big tech companies (Google, FB, Amazon, Apple, Microsoft) benefit from considerable network effects so once you've captured a significant share of the market beyond a tipping point, you are just an unstoppable force (plus there are very high switching costs for products like Windows, iOS). My friends/family across the country getting Teslas doesn't enhance the benefit to me getting one (except perhaps the fact there will be more charging stations), unlike something like Facebook. If I don't really like my Tesla, it's easy to buy a Toyota for my next car.

Because if Tesla share holders have to accept that they are holding a car company and not a tech company, they would have to settle for a price to book value of closer to one (like Ford, Toyota, GM and basically every other car company is valued at). It would kill the illusion they are selling to the public. Their solar division is a giant money pit and was only acquired to pay off Tesla board members that were holding worthless Solar City stock.

I factored in the stock split. I just went to a stock chart and went back 6 months. It does it for you. Tsla is not up 14 times this year.

So I think this huge mistake by you not me makes the rest of your post suspect but I'll still address it.

Youa re making my point. There stock is incredibly overvalued. Why don't they offer that overvalued stock to buy Ford at 3 time it's current valuation?

rojo wrote:

Youa re making my point. There stock is incredibly overvalued.

Maybe Elon is just a whopping whole lot smarter than youa re, rojo. Maybe Elon knows their is a good reason not to buy Ford. They're may also bee reasons not two by Honda, and their may be reasons not too bye GM.

rojo, yew shuld rite a lettur two Elon. Let him no yur ideers. I,m shur that he will be as impressed with yur grasp of bidness as he is of yoor facility with English grammar.

How does a stock's market value translate to cash?

You can do some sort of share swaps, sure but just because TSLA is valued "x" on the 2ndary market doesn't give them the cash.

And if I had to venture an educated guess it, TSLA has enough labour issues to deal with on their own, they don't want to buy an antiquated company who's laden in pension debt.

They'd really learn something anyways by buying a Japanese or german mfg to learn about build quality though.

There’s absolutely no reason for Tesla to want to buy Honda, GM, Ford, or any other car companies. It doesn’t matter about the issue of merging related to finance.

Biggest advantage of Tesla is that they have no old legacy of building ICE cars. Buying GM, Ford or Honda, you will be adding significant amount of dead weight to Tesla that it brings no advantage. It will place Tesla at a disadvantage dragging them down managing terrible product pipeline.

Especially with GM or Ford, they’ll bring unionized labor. They haven’t had the reputation of reliability so not sure if they’ll be much of an advantage to acquire any manufacturing practices. They probably have so much dead weight and inefficiency to their company.

Honda being a Japanese company would have so much waste in beurachracy and hierarchical management style.

So, Tesla wouldn’t be interested in buying these companies at all. Only reason I can see is buying at a really cheap price and flipping for a higher price. That’s about it.

Amazon appreciated in value for many years even as its profits and margins were minuscule in comparison to, say, Apple, because the belief was that it had an increasingly dominant position in many markets that would eventually pay off in the future. Tesla's stock trades far above its profitability and revenue because it is regarded as the future of the industry in some ways. The quality was rated very highly, often #1, before they started ramping up production of newer models, so they'll overcome these hurdles, but it's been obvious for years that they need to either partner with major car companies (something Musk never wants to do) or bring in production executives from, say, Toyota, a company that knows how to make high quality cars in large #'s.