12 December 2018

Down the rabbit hole of Apple-Tesla talk

One thing was clear but nobody could say for sure what it all meant. The San Francisco Chronicle had the market chattering with a story that heads at Apple Inc. and electric-vehicle maker Tesla Motors Inc. met a year ago. Could this be Apple sowing seeds of a takeover?

According to the report, top Apple dealmaker Adrian Perica met Tesla’s chief executive Elon Musk.

But that was it. Nothing else. No attributed sources. No word of what was said.  

The Hong Kong Economic Journal’s investor diary tried to fill in some of the blanks by delving deeper into the issue.

Before he died, Apple co-founder Steve Jobs said he would have developed an iCar to take on Detroit’s big three carmakers if he’d had more time. Now, as if was then, the statement is enough to fan hopes in Apple adherents that a deal with Musk, the real-life model for Hollywood’s genius engineer Iron Man, would give him a seat on Apple’s board and a chance to revive the Apple group.

Apple has relied on the success of its well-established iPhones and iPads in the two years since Jobs’ death and invested most of its cash in share buybacks, rather than in its future. Compare it with Google Inc, which has bought eight robotics firms in one year. 

The Chronicle’s story and tie-up speculation may have sent some people rushing to buy Tesla but professional investors have held off.

Famed short seller Doug Kass, founder of hedge fund Seabreeze Partners, has a name for steering clear of shares already with a high ratio of short positions. About a quarter of Tesla’s 123 million shares were shorted but even Kass has shorted the carmaker, listing the move as one of his best investment ideas.

Why now is Kass breaking his own trading rule?

Tesla stock has soared from US$38 to US$209 over the past year, despite a slew of negative news such as its large-scale recall of charging parts and fire problems with its Model S battery.

Tesla’s share price was at US$50, with a total market value of US$6 billion. Now its market cap is US$24 billion and Kass said he can’t believe Apple is still interested in talking.

Kass is not alone. Another speculator reportedly sold 556 call option contracts at US$12.60 per share to be delivered in June with a strike price of US$240. The speculator sold them as Tesla’s shares topped a record US$200 last week.

The bet entitles the contract seller to a US$700,000-plus return if Tesla shares don’t hit US$240 by the end of the contract, a rise of about 20 percent in less than four months’ time.

Given Tesla’s strong momentum, it wouldn’t be at all surprising if it doubled in three months. So it’s still anybody’s bet whether this speculator and Kass will both walk away with big gains.

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Freelance journalist

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