With Tesla down nearly 40% on the quarter, Model 3 sales & deliveries slowing dramatically, & a slowing of the economy as a whole Tesla has to be looking to make moves. The only question is what play is up next?
Disclaimer: I happen to work in the EV industry (no not for Tesla, that’d be only a lot frowned upon) & have a soft spot in my heart for everyone really pushing the envelope in the automotive world. That said, times are changing (again) & shit is going to get weird.
As competition heats up in the EV market (see the Polestar 2, Hyundai Kona/Kia Niro, VW MEB platform, etc...), Tesla’s sales slow, & Tesla losses what remains of it’s federal tax credit offerings, Tesla is going to have increased problems managing it’s cash reserves. Given this they’d be foolish not to begin entertaining merger discussion (alongside partial-buyout options from larger tech companies, but that’s a whole other can of worms) with many of the big name OEMs. Couple this with movement from FCA in pursuing a deal with Renault/Renault-Nissan, reports on alleged Ford-GM discussions (whether JV or merger), & the technology gaps of Toyota/Honda/Mazda & you have a recipe for meme worthy action. And that’s exactly what we’re going to try and sort out here... Who’s the most likely to make moves w/ Tesla, & who would produce the most meme filled action?
OK-OK-OK, I hear your eyes rolling now. First let me lay out who I believe to be the top contenders for the stupid prizes, then we can dig more into the stupid games.
Ford
Ford is actually my least likely prospect in this hypothetical, & really only for one, relatively irrelevant, reason: Rivian. Yes, Rivian is a relative nobody in this discussion; not only have they never produced a production ready vehicle, but they aren’t exactly a lock to get there at all. What Rivian does bring though is a wealth of knowledge from previous EV startup ventures. In complementing contrast however, Ford brings relative stability to a pool of engineers used to living off month-to-month lease agreements & a constant questioning on how many of their inflated pay-checks will continue to clear.
Given Ford’s recent struggles of their own, what puts them in position to make a move of this magnitude anyways? Three words: consolidation, liquidation, & simplification. Now I could do a bit on this alone & it would take up {insertNumberOfWordsTheyWouldntRead} itself, but really this manifests itself in one critical financial figure: Cash (You were expecting something fancy here weren’t you?). Right here you can’t see Ford preparing to make moves with Q4 2018 cash reserves of a reported $16.7B & a Q1 2019 reported reserve of $20.8B. That’s a casual near 25% increase in cash reserves for a company that’s been fending off catastrophic valuation deflation for the past 5 years... Not something you see often, and certainly indication that Ford is about to make a big play.
General Motors
While a lot of industry insiders are currently pushing Ford as the biggest OEM on the edge of the recession chopping block, I see it as (once again) GM. You see, GM has invested a ton of time & money into shifting it’s focus from a US centered global brand to an Asian one. Now that statement might infuriate quite a few people, but given GM’s withdraw from the European market entirely & it’s continued dis-investment in the US market, coupled with new plans of expansion in Asia (primarily China).... What other conclusion am I supposed to draw?
Similar to Ford, GM has also dramatically increased it’s cash reserves (up over 16% since Q2 2018 to $20.2B) & similar to Tesla, GM is looking to expand it’s grasp on the Chinese market (especially with EVs). Now given an apparent rejection from Rivian & and “surprising” slowing of the EV market in China (if calculable market saturation can be considered surprising), GM is very much in the market for teaming up.
Toyota
In terms of cash on hand (well, cash & short-term investments), Toyota blows Ford & GM into orbit with a staggering $52.6B (Ford’s C&ST is $37.7B, GM’s is $23.2B). Toyota also has ongoing joint-venture discussions ongoing with Panasonic, talks which could theoretically stabilize the tense relationship between Tesla & Panasonic.
Now given Toyota’s dramatically larger scale of operation/value a merger is laughable. Thus action like a majority buyout or straight acquisition would seem a more likely outcome. Toyota really does have huge strides to make up in the EV market & they’ve been known to make deals to advance their technology before (see the Tesla developed RAV4 EV).
Fiat-Chrysler-Renault
On their own, neither currently presents a huge threat on the world market, nor as a potential mergee with/acquirer of Tesla. However together you would see the 3rd largest automotive conglomerate in the world & a C&ST total of over $32.0B to go along with that status.
To slow down a bit, a merger of this magnitude would shock the automotive world & would take years to fully close out. If Tesla is still on the block though in 12-18 months at a continually dropping valuation then a major acquisition wouldn’t be the most unrealistic way for the new auto-giant to flex its muscles.
At the end of the day this gives what I would point to as two realistic market transition opportunities for Tesla; merge or be acquired. At this point it would be easy to point to Musk’s ego & conclude that he would never let an acquisition happen, so a merger is the only way. I don’t believe this to be true though. I only see acquisition as being a likely outcome here & really only one automotive company is capable of such a move in the short-term: Toyota.
Enough of my speculation, what do you think Oppo? Is Tesla merger/acquisition bound or is it still in the clear?