On June 10, Tesla (NASDAQ:TSLA) went over $1,000 for the primary time in its historical past. Now, as Tesla stock flirts with a four-digit share price, I need to look again at what might need been for certainly one of America’s most iconic car manufacturers.
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Earlier than I look again and reminisce, it’s vital to notice that Tesla as we speak has a market capitalization greater than seven occasions Ford’s (NYSE:F). How loopy is that?
Effectively, Elon Musk just lately tweeted, “Tesla is now officially the most valuable automaker of all the world!! Congrats!!.”
Bloomberg wrote concerning the tweet in a June 15 article, suggesting that figuring out the world chief was a tough factor to pin down. It will depend on what number of shares are included available in the market cap calculation.
Should you exclude treasury shares, Tesla is primary. Should you embrace them, Toyota (NYSE:TM) nonetheless holds the crown. Whoever is on the high of the heap, Tesla’s rise to energy is noteworthy.
That’s very true in case you are Invoice Ford or Mark Fields.
Let Me Take You Again to April 2017
Ford was government chairman in April 2017; Fields was CEO. On April 5, 2017, I puzzled if Ford may purchase Tesla. On the time, I felt there have been three issues that stood in the way in which of a merger.
However earlier than I get to the three issues, let’s take into account that Tesla had an enterprise value of $54.three billion whereas Ford’s was roughly thrice greater at $160.7 billion. At this time, Ford’s enterprise value is $147.5 billion, 77% the scale of Tesla.
The chance is misplaced eternally.
Might Ford Have Afforded Tesla Stock?
The primary query mark on the time was whether or not Ford may afford to purchase Tesla.
“Ford’s free cash flow for the latest 12 months is $12.8 billion, higher than it’s been in the past decade and trending higher. Certainly, the higher prices it’s getting for the F-Series helps a whole lot,” I wrote on the time.
“Ford finished 2016 with $13.2 billion in automotive debt and $27.5 billion in automotive cash with 89% held in the U.S. That puts its automotive net U.S. cash at $11.3 billion. Without selling any assets or issuing shares it’s got enough net cash to put down a 20% down payment based on a $60 billion price tag.”
Given Ford would have wanted to borrow a giant chunk of the acquisition, I argued that Tesla’s lack of profitability made it a scary proposition.
What Was Elon’s Headspace?
The second query mark was Elon Musk. The billionaire owned nearly 27% of the corporate’s stock and was firmly in management. The thought of Musk taking orders from anybody aside from himself is ludicrous.
Nonetheless, had Tesla been prepared to shut up store, it’s attainable Musk would have no less than listened to any propositions. InvestorPlace contributor Ian Bezek mentioned a few of Tesla’s weaknesses across the similar time as my article. One of many considerations was its growing cash burn.
“From 2009 onward, Tesla’s free cash flow has grown increasingly negative. Apart from 2013, the company’s cash burn has worsened almost every year. Cash outflow has topped $1 billion each of the past three years. The bail-out of the cash-incinerating SolarCity will make Tesla’s cash generation situation even more perilous,” Bezek wrote in April 2017.
There isn’t a query Tesla’s survival wasn’t a positive factor three years in the past. If there was a possibility to pounce, the door would quickly shut.
Would Ford Even Need Tesla?
It’s arduous to think about anybody not desirous to personal such an modern firm. However on the time, Ford’s glass was half full. The F-150 was producing enormous income to cowl up how badly the remainder of its enterprise was performing.
Fields was out at Ford lower than two months after my article. He was changed by Jim Hackett, who stays within the high job. Since Hackett took over, Ford’s stock has misplaced 42% of its value, whereas Tesla’s gained 223%.
Should you’re a long-time Ford shareholder, that’s obtained to be painful.
The Backside Line on Tesla
A yr later, in May 2018, I prompt that Ford nonetheless had an opportunity to purchase Tesla, however that chance would finish as soon as Tesla grew to become worthwhile, posting its first-ever annual revenue in 2019.
Clearly, the horse has left the barn, no pun supposed. Oh, what might need been.
As for Tesla itself, so long as Musk is in cost, I stay a fan.
Will Ashworth has written about investments full-time since 2008. Publications the place he’s appeared embrace InvestorPlace, The Motley Idiot Canada, Investopedia, Kiplinger, and several other others in each the U.S. and Canada. He notably enjoys creating model portfolios that stand the check of time. He lives in Halifax, Nova Scotia. On the time of this writing Will Ashworth didn’t maintain a place in any of the aforementioned securities.