The surprisingly good reason Tesla should acquire Ford

You’re here (NASDAQ: TSLA) has disrupted the global auto industry and is by far the world’s most valuable auto maker. However, investors also give the company a lot of credit for what they expect it to do, not what it has already done. In the years to come, the company will have to spend huge sums of money to expand its manufacturing capacity, while continuing to invest in technology and its products to continue to grow.

In the December 8 edition of “The Wrap” on Motley Fool Live, host Jason Hall made a bold proposal: Tesla should acquire Ford (NYSE: F). Not only would this go a long way to jumpstart the company’s growth needs by acquiring Ford’s huge global manufacturing footprint, but Tesla Founder and CEO Elon Musk would gain a head start to completely disrupt the industry. automobile. Only this time, with the manufacturing weight of one of the industry’s heavyweights.

Transcription:

Jason Hall: Tesla is in pretty good shape when it comes to their track record, they have a fair bit of cash. Not a lot of debt. But that will change over the next few years as the business needs to grow. It needs to strengthen its manufacturing capacity all over the world to continue to develop. It’s expensive, it’s a big up-front investment that takes several years to pay off before these factories get up and running and start to reach profitable capacity.

I want to make a proposal to Tesla. This is something Elon Musk recently said, that he would listen if he was approached to discuss the merger with another major automaker. I think it’s time for Tesla to make a serious concerted effort to buy Ford Motor Company. I know some of you are laughing or having some sort of outrage right now. Your outrage could be due to two very different impressions of Tesla and Ford.

Now I’m going to do a screen share to show you why I think this would really be a great idea. [Shares screen] We will start here. You should be able to see, with purple is Tesla and yellow is Ford Motor Company. This is the market capitalization. A market cap of less than $ 37 billion for Ford, a market cap of $ 613 billion for Tesla currently. Tesla is currently selling $ 5 billion in stock because the stock is so rich right now. It’s the smartest way to raise capital. If there is a demand for that stock, you sell as much of it as you can and generate a huge amount of cash.

Now I’m going to go back here and we’ll look at some financial metrics. So what do you see here? It is, and it is back in the past three years, that Ford Motor Company has consistently generated more than $ 16 billion in cash from operations. That number has skyrocketed after its last quarter. Almost $ 23 billion in operating cash versus $ 4 billion in operating cash from our friends at Tesla. Free movement of capital. Again, the free cash flow generated by Ford Motor Company is huge.

Now why is all of this important? This is all important because at this point one of those two companies has not reached a significant global manufacturing scale and the other, and that is Ford. Ford has a few hundred factories around the world. She has absolute expertise in manufacturing at the scale Tesla must eventually achieve, if it’s worth what investors are paying for the company today.

Of course, he has an option. It’s about developing and constantly improving battery technology, which has applications and a wide variety of ways besides just being in vehicles. There is potential for this as a solar business; manufacture of solar panels, installation of solar panels. There is some option.

But at the end of the day, the company’s biggest business for a long, long time will be manufacturing and selling automobiles. A great way to do this is to work with a company that has proven, over decades, to be really good at making automobiles on an absolute scale.

Here is the second thing I want to say. I think this is something that is easy to miss. There is no doubt that Tesla fundamentally changed the auto industry permanently. Tesla could disappear overnight, and the way automakers think about the cars and cars they try to build in the future is different today than it would have been if Elon Musk hadn’t. created Tesla. there is no doubt. There have been serious disturbances from outside.

Now do you really want to change the global auto industry? Change it from the inside out. Take control of Ford, start rebuilding everything they do, speed up every timeline they have to move away from internal combustion engines, and that’s it, Elon Musk, that’s how you get to the future of electric vehicles which you think is going to be as people travel the world.

Now let me tell you why this probably won’t happen, and it’s very simple. It is described in the four letters that are found on almost every automobile made by the company, FORD, Ford. The Ford family still has de facto control of the business. They own a minority of shares, but the shares they own essentially control a majority voting interest between the Ford family and between affiliates and relationships they have with other large shareholders. They can say no to any deal.

So I don’t even really talk to Elon Musk, I talk to the Ford family. I think the best thing for the auto industry that could happen, honestly, would be for Tesla to take this bold step and start changing it from the inside out.