Market Mad House

In individuals, insanity is rare; but in groups, parties, nations and epochs, it is the rule. Friedrich Nietzsche

Market Insanity

Why Elon Musk will sell Tesla

There is only one reason for Elon Musk to take Tesla Motors (NASDAQ: TSLA) private – to sell it.

No serious buyer will touch Tesla at the $51.468 billion market capitalization reported on 31 August 2018. Tesla’s Market Cap exceeded those of Ford Motor Company (NYSE: F); $38.78 billion and General Motors (NYSE: GM) $50.86 billion.

Why would anybody buy Tesla; which reported a loss of -$2.722 billion on June 30, 2018, when Ford would cost less? Ford reported a net income of $6.775 billion on June 30, 2018. More importantly, Ford owns dozens of factories all over the world. Tesla owns just three factories although it has several on the drawing board.

Musk will find it impossible to sell Tesla as long as the company is public. The only way Elon can offer a realistic price is by taking Tesla private. Were Tesla private companies like Ford, GM, Volkswagen AG (ETR: VOW3), Toyota (NYSE: TMC) and Tata Motors (NYSE: TTM) will bid on it.

An automaker might gobble Tesla up by buying the $11.62 billion in debts Musk reported on 30 June 2018. Ford which had assets of $258.08 billion and $36.48 billion in cash and short-term investments on June 30, 2018, can easily pay off Tesla’s debt.

Why Ford Should Buy Tesla

There is a compelling reason for Ford to buy Tesla to pump up its stock value. Ford shares were trading at $9.48 on 31 August 2018. That gave Ford a Market Capitalization of $38.78 billion on the same day.

Acquiring Tesla might raise Ford’s stock price to the Tesla territory. Tesla shares were trading at a moronic $301.66 on August 31, 2018. Ford could raise far more money from private equity with Tesla.

Beyond that, Ford would get all of Tesla’s technology, Tesla’s brand, and the Gigafactory to produce batteries. Unlike Tesla, Ford will not need to build cars in a tent in the parking lot. It can move production to an existing factory, where United Auto Workers (UAW) members will build the  Model S and Model .

Moreover, Ford would not need to build a factory in China. It already has assembly plants in Hangzhou, Chongqing, Xialon, and Harbin. There are several Ford assembly plants producing vehicles in China right now. Tesla is still in negotiations to open a plant in the People’s Republic.

Introducing the new Ford Taurus in Shanghai, from left: Marin Burela, president Changan Ford Automobile Co., Ltd.; Raj Nair, group vice president and chief technical officer, Global Product Development; William Clay Ford, Jr., executive chairman, Ford Motor Company; Mark Fields, president, chief executive officer, Ford Motor Company; John Lawler, chairman and chief executive officer of Ford Motor China; He Chaobing, executive vice president, Changan Ford Automobile Co., Ltd.

Ford has factories all over the world it can use to build Tesla products. Ford has the option to build a Tesla van, a Tesla large SUV, and a Tesla pickup truck quickly.

Okay those vehicles would be Fords with a Tesla marquee on them. Yet most Tesla owners would not notice. The Tesla name would attract more customers to Ford. Ford will add Tesla’s electric engine technology and self-driving vehicle systems to its vehicles.

Why Ford Needs Tesla

Beyond that, Ford can market Tesla vehicles through its existing dealerships. Unlike Musk, Ford will not need to build a network of dealerships.

Oddly, the greatest attribute Tesla offers Ford or any other automaker, is the network of Superchargers. The Superchargers are the “gas pumps” for electric cars. Tesla operates 1,332 Supercharger Stations with 10,901 chargers in Asia, North America, Europe, and the Middle East.

Buying Tesla will give Ford a readymade network of Superchargers. The Superchargers can generate revenue by selling electricity to drivers. Fast-food outlets, coffee shops, or convenience stores at Supercharger Stations would be another great source of revenue.

Tesla’s expertise at maintaining electric vehicles in the field is another tremendous attribute. Ford will not have to build an electric vehicle service network from scratch if it owns Tesla.

Even the Tesla stores would add value to Ford by being a place it can use to retail Ford or Lincoln products. Ford can place its vehicles before upper middle class customers that would never set foot in a Ford dealership. Tesla’s showrooms inside Nordstrom (NYSE: JWN) department stores will be a perfect place to sell Lincolns.

Why Tesla Needs Ford

Tesla needs help from an automaker like Ford because Musk does not know the auto business. Basic auto industry know how is needed at Tesla.

I think Musk is clueless about auto marketing because of the Model 3. The Model 3 is a basic sedan, a class of vehicle that is dying fast in America.

Other automakers have killed their US sedans because they were not selling, Bloomberg reported. Fiat Chrysler (NYSE: FCAU) pulled the plug on the Dodge Dart and Chrysler 200 last year. Ford followed by halting North American production of the Focus and Fusion.

“There’s a good chance that in eight years, this segment of the market doesn’t even exist,” HIS Market Analyst Stephanie Brinley said of sedans in a January 2018 Bloomberg interview.

I have to wonder if Musk reads the business press. I also wonder if he has ever driven through a middle class American neighborhood lately and looked at the vehicles in people’s driveways. If he had, Tesla would build a pickup truck right, rather than handing the keys to the electric pickup market to Ford.

Is it Time for Musk to Exit Tesla?

Interestingly, Musk himself may understand how he is hurting Tesla. Elon knows a car guy must takeover – selling Tesla is the best way to achieve that.

Musk will let a car person takeover Tesla because his goal at the company is driving the mass adoption of electric cars not building a brand. Musk only started a car company and built a brand because nobody else was serious about electric cars.

Now everybody is serious about electric cars and almost every automaker is rolling them out. Therefore, there is no more need for a standalone electric carmaker like Tesla.

Moreover, a strong argument that Musk can speed electric car adoption up by selling Tesla’s technology to other car companies exists. Musk may think he is standing in the way of electric car adoption by staying at Tesla.

Why Musk wants Out of Tesla

Beyond that, Elon might just be tired of dealing with the Tesla crisis of the week. He may want to spend more time with his kids, his Hyperloops, and his rockets. After all, exploring to Mars is far more fun than hanging out in a parking lot in Freemont.

Taking Tesla private will enable Musk to wind the venture down and net a tidy profit by selling it. He will also get rid of all the stock headaches. Private equity will provide all the money he needs.

Musk only took Tesla public because he could not raise the money he needed elsewhere. Now, Tesla can raise all the money it needs through private equity or partnerships with other carmakers. Therefore, there is no more need for Tesla stock.

My prediction is that Musk will take Tesla private and sell it. Therefore, sell your Tesla stock now if you own it. If you don’t have Tesla stock, stay away from it and buy Ford instead. You might end up with a piece of Tesla by owning Ford anyway.