Why Tesla Is Unlikely To Buy A Traditional Automaker Outright

Following Elon Musk's comments that Tesla Inc TSLA is open to a friendly takeover of a traditional automaker, the Street is awash with speculation regarding the potential target.

Loup Venture's Gene Munster says otherwise.

Outright Buy Unlikely: An acquisition of a traditional automaker would bring philosophical differences, along with financial liabilities such as pensions, Munster, a sell-side analyst turned tech venture capitalist, said in a recent blog post. 

Ford Motor Company F said in a filing earlier this year it expects to record a pre-tax re-measurement loss of approximately $2.2 billion related to its pension and other post-employment benefit plans.

The Potential Roadblocks: First, a clash of principles would be likely in this scenario, Munster said.

While traditional automakers use Henry Ford's manufacturing line as the primary method, Tesla has created a hybrid manufacturing line that factors in assembly sequencing to dramatically optimize line speed, he said. 

Second, unlike traditional automakers, which rely a network of suppliers to provide commodity components and often often outsource software engineering, Tesla is a vertically integrated company that owns hardware, software and manufacturing, according to Loup Ventures. 

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Third, there isn't likely to be another legacy automaker that has the technology Tesla wants, Munster said.

"The company has a tech advantage in each building block of the car of the future, including batteries, software, motors, and autonomy." 

Fourth, Tesla's brand resonates with forward-thinking, wealthy car buyers, he said.

Over the next 10 years and beyond, the brand will evolve outside of auto and represent a next-generation energy company, in Munster's view. 

Despite the foray of traditional automakers into the EV realm, they cannot match up with Tesla's brand image, the analyst said.

Finally, there is a difference in the sales channel, with traditional automakers relying on a dealership network model, while Tesla focuses on online sales.

Asset Purchases Prudent For Tesla: Instead, Tesla could consider acquiring automaker assets, such as their manufacturing facilities and workforces, Munster said.

This would relieve the company from building from scratch in terms of plant construction and training a workforce, and also solve its primary problem of building enough vehicles to meet the expected 40% annual demand growth, he said. 

Does Tesla Have The Capital? Tesla wouldn't face any issues with respect to financing a potential acquisition, Munster said.

Tesla's market cap of $560 billion is greater than the combined valuation of the next six automakers, he said. 

TSLA Price Action: Tesla shares were rising by 4.49% to $625.91 at last check Monday. 

Photo courtesy of Tesla.