Over the years, speculation about Apple (NASDAQ:AAPL) acquiring Tesla (NASDAQ:TSLA) has swirled periodically. Perhaps the most notable instance was when reports surfaced in 2014 that Tesla CEO Elon Musk had met with Apple's chief of mergers and acquisitions (M&A), Adrian Perica. That also just happens to be the time frame when Apple started Project Titan, its electric vehicle program that has seen renewed investor interest following a recent Reuters report that the Mac maker is targeting a launch by 2024 or 2025.
It turns out that Musk did indeed try to put together a sale to Apple, but it was much more recently.
Tesla kicked off Model 3 deliveries at an event in mid-2017. Image source: Tesla.
Tim Cook "refused to take the meeting"
The source of the news this time isn't a speculative media report, but rather Musk himself. The eccentric billionaire shared the anecdote directly on social media, saying that he attempted to contact Apple CEO Tim Cook while Tesla was struggling to ramp Model 3 production. Musk has consistently described that period as "production hell" as Tesla was entering the mainstream segment of the auto market.
During the darkest days of the Model 3 program, I reached out to Tim Cook to discuss the possibility of Apple acquiring Tesla (for 1/10 of our current value). He refused to take the meeting.
— Elon Musk (@elonmusk) December 22, 2020
For context, Tesla started production of the Model 3 in mid-2017 but faced a plethora of operational challenges around manufacturing, as well as deliveries. By the end of 2018, the electric-car maker had resolved many of the production problems but then progressed to "delivery logistics hell," according to Musk. That latter troublesome stage lasted until mid-2019 or so.
It's very likely that the "darkest days" that Musk is referring to were between mid-2017 and the end of 2018, during which Tesla's notoriously volatile stock mostly traded within a range. For a year and a half, the company's market cap fluctuated around $60 billion, which is roughly 1/10th of Tesla's current market cap of over $600 billion.
TSLA Market Cap data by YCharts.
The revelation comes after Musk disclosed last month that Tesla came within "about a month" of going bankrupt during the Model 3 ramp. The story is also reminiscent of when Musk attempted to sell Tesla to Alphabet subsidiary Google back in 2013 while the company was trying to increase Model S production, as Musk is personal friends with Google co-founders Larry Page and Sergey Brin.
In an eerie parallel, Tesla's market cap was just $6 billion that time around -- about 1/10th of Tesla's valuation during the Apple episode. That's twice that Musk has looked for a buyout during tough times, been able to survive, and then saw Tesla's valuation soar by tenfold. Don't expect that to happen again, though, as another tenfold jump from here would equal a market cap of $6 trillion.
Tesla was eventually able to pull off scaling Model 3 production and deliveries. (I've left out 2020 in this chart since the company now aggregates Model 3 and Model Y metrics due to the similarities of the vehicle programs.)
Data source: Tesla. Chart by author.
As Apple charges forward with Project Titan, manufacturing will be among the biggest challenges. Many experts have long expected the tech giant to leverage its long-standing strategy of outsourcing production to contract manufacturers, even though that practice is less common in the automotive industry than in consumer electronics.
Too expensive then and now
Considering Apple's penchant for small acquisitions as opposed to large splashy ones, it should come as little surprise that Cook wasn't interested in a $60 billion purchase. That would be 20 times larger than its biggest acquisition to date (Beats for $3 billion in 2014).
That's especially true when you acknowledge that Tesla was trading at a significant premium to legacy automakers back then, a valuation discrepancy that has now reached comical proportions.
TSLA PS Ratio data by YCharts.
At the risk of stating the obvious, it's inconceivable that Apple would even flirt with the idea of buying Tesla today for over $600 billion. As fun as it is to imagine an Apple-Tesla merger, investors should probably let the pipe dream die.
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