Tesla and Apple – AppleT Destiny Denied

Selling yesterday. Buying back in today at a lower price. The Tesla ShitStorm continues unabated.

Two law firms have launched “investigations” into Elon Musk’s “stock manipulation”. With his avowal to burn the shorts, and his announcement this week to take the stock public at $420, a case can be made. And these class action lawsuits don’t ever actually go to trial. They are generally settled so often that it has become its own genre of “greenmail”. The shorts will actually be able to partially recover in the settlement what they lost in the market. (Source: Top Aktien mit hohen Dividenden)

Similarly the SEC has announced they are investigating as well. This of course at the direct request of the wounded shorts. I have no idea how that will come out but I would expect nothing substantive. If Musk was not just tweeting, and was in fact considering going private, the fact that he didn’t “file” a notification just isn’t going anywhere. It’s hard to make a case on transparency when he’s announced it to 22 million of his closest associates on twitter and with the story breaking on ALL financial news tv networks within the hour. It has been reported he DID discuss it with some members of the Tesla board of directors a week before and if that can be verified he’s pretty much a clean walk. But the fact that he was investigated will play into the greenmail settlement. It would have been slightly better if the tweet had occurred after market close instead of during trading hours.

The board has dutifully scrambled to support. They are looking to seek outside advice, form a committee of course to look into privatization, and Musk will of course recuse himself from those deliberations. SO for good or ill, whatever was and might have been prior, the topic of taking Tesla private is now officially on the table and the wheels are grinding slowly into forward motion.

In a perfect world, that will continue for about, I’m just guessing, three months, until the next quarterly report preferably with positive cash flow on hand. And I HOPE the conclusion is that it is just too problematic to carry employees and current small fry shareholders along for the ride and the whole thing is dropped.

In itself, that does a very interesting thing. It puts the irrational task of truly valuing Tesla as a company, enterprise, technology, and idea fully in the crosshairs. It brings it to a point. No, you can’t wait and see. The entire world has to do their very best at peering into the future and valuing this entity right NOW and with no small pressing urgency.

This is of crucial importance to any funding, secured or not and puts the pressure on Saudi/Softbank/10cent et al to actually ANSWER the question of what it might be worth.

It puts it right on the plate in front of the large major shareholders of Tesla. No waffling. No hopes and dreams. No hedge bets. What IS the damn thing worth going forward. And you have to decide NOW. And will it be better public, or can even larger gains be had by taking it private, ramping it up, and doing ANOTHER IPO round later?

That applies to us small fry as well. The individual shareholders have little say so in this but they do suffer the outcome whatever it is. And do you sell at $420 or roll into whatever goofy magic fund Elon manages to cobble together?

In the NFL, you have players and you have the fans. But public markets are kind of fun because EVERYBODY is in the crowd cheering and booing, and EVERYBODY can be a player on the field as well. So I would say there is not a CEO of any publicly traded company IN THE WORLD who is not glued to the screen over Elon Musk and the Tesla story. And they are not only a rapt audience, but potentially a player. And what this means is that as of this week, Tesla is basically “in play.” Whatever Musk thought he was doing, he’s put his company “in play.”

And what that means is that ANYBODY can play. I can personally make an offer for the entire company – funding secured or not. EVTV LLC can offer a 1 for 1 stock swap acquisition/merger of equals for all outstanding shares of Tesla within a day. And actually, if we did file it the board would have to consider it and we might even be able to force it to a shareholder vote.

Yes, I know Elon’s got 21% of the company. But people do funny things for money and his other shareholders might not be as loyal as you think.

Actually they are. And the reason is very simple. Beyond the 21%, Elon kind of has a pocket veto. If it doesn’t go his way, he just walks. And half of the Tesla valuation equation really IS Elon Musk.

So what do you think Elon? We could become EVTV/Tesla – the most dominant automotive manufacturer on YouTube. I might even be inspired to go back to weekly.

In all deal making, to be effective, you have to put yourself in the other guy’s yellow crocs. And I really can’t come up with any really good reasons for Elon to ally with a small garage in Missouri and a 300lb wheezing “has been/never was” who is down to working half days, as a partner – even in very fashionable yellow crocs. He’s going to ask. And I really have nothing persuasive here to go to. It is true, that if I walk one mile south, and one mile west, and one mile north, I do know two places where I can wind up back in the exact same spot. But I don’t think that will really cause him to recommend the deal the to the board.

Over six years ago I described in gory detail why a merger of Apple, SpaceX, Tesla, and Solar City would be a win/win/win/win for everybody that touched it from any direction. It seemed Messrs Cooke and Musk ignored that with great vigor. I think they each severally and together made a huge strategic blunder. As a very long time shareholder in both, and in the case of Apple, VERY long time shareholder, might I at least dust off this hoary old image one more time?

And in this case, I would like to add my INTENSE dislike for the software in the Model 3 screen display. And how minimally required I think it is to have my iPhone just show up on screen when I get in the car.

The case then and now remains more about Apple than Tesla. Apple has just recently repatriated a brazillion dollars cash from it’s hoarde overseas. I really don’t know HOW much money was involved or what it wound up being. At one point the larder was purported to be north of $250 billion. They paid some reduced taxes on it to bring it home, courtesy of the Donald and super accountant Tim Cooke immediately jumped all over it. As a gay atheist living in California in the Apple culture I just don’t believe he did this to support the Trump agenda frankly.

At one time Apple was very much like Tesla, a very rapidly growing high-technology company led by a visionary leader who was personally protected 24×7 by a reality distortion field.

But eventually, it fell prey to the law of large numbers. If you have a startup with $2 million in sales, and you double it year over year, you have $4 million in sales. This is great fun. Of course you have to maintain your current $2 million in sales and find $2 million in new business to do that. But hey, its a huge market.

To maintain the same rate of growth the next year, you have to find $4 million in NEW business. And eight million the year following.

This works pretty well until you get to $10 billion. At that point you have to find $10 billion to grow 100%. And at $30 billion you have to find $30 billion in new growth. And pretty soon, the number is so large you can’t possibly do it as the total market for your product isn’t that big.

To feed that monster, you generally cannot grow it organically. You have to purchase entire companies to gobble up their market share. But as your size approaches the limits of the market, governmental regulators, going back to the Standard Oil days, begin to examine and often prohibit further acquisitions as being anti-competitive.

Remarkably, Apple has somehow managed to achieve near 100% market dominance of an enormous smart phone world organically. And since they didn’t acquire competitors, there was never a moment when governmental entities could intervene. Ergo the world’s first Trillion Dollar market capitalization of a corporation.

They could easily have gone into becoming a carrier themselves and shut ATT out. But that not only invites governmental intervention, but causes fear among all carriers that might service their product.

Along the way the cash started to pile up and it got into everything, the vacuum cleaner, the carpets, the cabinets. It was ruining the decor.

Today, Apple is paying dividends and buying back stock furiously while paying huge taxes on the profits. All of these are unredeemable and incontrovertible signs of fudiciary mismanagement on a scale heretofore unthinkable. And so no one really knows what to think but they keep buying the stock.

Generally, I applaud the concept of sticking with your core competency and not diversifying for the sole purpose of diversifying. But Apple is starved of blue sky and severely constrained by the law of large numbers. There’s no place to go with all of this.

Well almost no place. They currently are very much NOT dominant in solar energy, although their new campus is certainly a model of how to power by it. They have essentially become a power company on the side.

Rumors of Applecar notwithstanding, they currently enjoy no presence, much less dominance, in the automotive market.

They have no nexus in satellites or space launch. Or just off the top of my head, say a global satellite network that comes to OWN the Internet eventually offering gigabit data rates to handheld smartphones anywhere on the surface of the earth, and as Buzz Lightyear says, “and BEYOND”.

Elon Musk is on the verge of building a MOAT around the concept of blue sky in hard technology. He comes very near to owning the IDEA of blue sky in hardware and software technology.

And he has an insatiable appetite for cash. The guy really knows how to spend it QUICKLY and with impressive efficiency. He converts cash into technology directly and effortlessly. He can gobble billions for breakfast like cheerios.

So Apple needs blue sky and growth opportunity – and frankly they need to replace Steve Jobs finally. Tim Cooke is a great XO but he just can’t captain the ship.
They need a visionary leader.

Musk/Tesla/SpaceX et al need a really not yet discussed but impressive level of capital to put all his plans into play. I mean hundreds of BILLIONS.

And frankly they could use a little expert financial management, discipline, and market credibility. Tim Cooke is very good with quarterly earnings calls. The SEC is not a mystery to him. The vagaries of being public are almost handled by his assistants they are so mundane to these people. Apple executes the business part of being a business as well as it can be done on par with any corporation in the world. Duh.

This could be done with a cashless stock swap and would overnight DOUBLE the value to BOTH sets of stock holders. Let Musk be the CEO and Cooke the CFO/COO and get a really outstanding and active board of directors. I would be willing to sit on that for an embarrassingly huge amount of money and perks. And a parking spot of course. Maybe a new MacPro.

Musk would be basically a replacement for Steve Jobs and would be relieved of ALL of the detritus/crainial damage of “running” the business end of the entity. He could hang out sleeping on the factory floor, doing the odd bit of code, or whatever it is he LIKES to do as CEO.

Understand that Apple is not the only suitor in the gallery. I’m thinking of cashless mergers here primarily. VW is huge and known for acquisition and could certainly use a win and maybe a CEO as well.
Google already has a relationship. I guess I don’t think Amazon is a player here.

But Apple has the unique need for a visionary CEO and has a uniquely problematic mountain of cash. It brings discipline and market credibility. It needs new blood and ideas. This match was meant to be.

AppleT as in Apple Tea, not as in applet.

Jack Rickard