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What will Apple do next with its $237 billion cash-and-equivalents hoard and its
important iPhone product line that is incapable of further volume growth? It’s either the
boring financial engineering of dividends or share buybacks or i t’s a bold move beyond
the confines of smartphones, laptops and their associated services and accessories.
Apple realises that if it wants to deepen its reach into the lives of its user base, the next
frontier is the automobile as cars become more digitally connected. After all, the late
Steve Jobs showed that a company needs to bet big and bet wild to avoid complacency
Acknowledging that Tesla needs more capital to realise its potential and Apple needs to
expand its ecosystem to the car in a more profound way than that represented by the
current Apple CarPlay software, Apple goes after Tesla. It secures funding for the deal
at a 40% premium of $520 per share – acquiring the company at $100/share more than
Elon Musk’s errant “funding secured” tweet.
The acquisition makes perfect sense. It’s small enough to be an all-cash deal and it only
represents 12 months of Apple’s free cash flow. The two companies are both focused
on engineering and design in hardware coupled with vertically integrated distribution
models in high-fashion areas. Apple has the financial strength to fulfill Elon Musk’s
wildest dreams, ensuring that Tesla does not have to balance capital expenditures to
cash flow generation in the short term.
The acquisition allows Tesla to build several new Gigafactories and production facilities
in Europe and China to stay ahead of the competition and dominate the future of the
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