A couple of weeks ago, TheStreet’s and Mad Money’s Jim Cramer went on record with his top 3 picks in the electric car industry. According to him, QuantumScape, Fisker, and Lucid Motors could be profitable bets.
As Apple seems close to entering the space, one thought has crossed my mind: could the Cupertino company own one of Jim Cramer’s top electric car makers?
Plenty of money in the bank
The first question is whether Apple has the dry powder to gobble up one of these promising electric vehicle companies.
As of fiscal first quarter 2021, Apple held nearly $200 billion in cash, equivalents and long-term investments – the latter a portfolio of primarily highly-rated securities. In addition, Apple has proven that it can easily raise cash when needed and at low cost, as it did at large scale in February.
Jim Cramer’s top EV picks are valued as follows:
- QuantumScape: market cap of $16.2 billion
- Fisker: market cap of $4.2 billion
- Lucid Motors: its SPAC (special purpose acquisition company) is valued at $5.7 billion
The most valuable of the companies above represents less than 10% of Apple’s gross cash position. All three of them, combined, add up to a bit over 13% of the Cupertino company’s cash pile.
Setting aside operational complexities in raising high quantities of cash for M&A activity (e.g. liquidating investments, repatriating cash from overseas, issuing debt), it looks like Apple has plenty of resources to make acquisitions in the EV space, if the company chooses to do so.
Would it be strategic?
The more important question, however, is not whether Apple has money – but whether the company would choose to deploy its resources to acquire one of the EV companies above. Each of Jim Cramer’s top 3 picks would bring something different to the table:
- QuantumScape: despite the higher valuation, this could be the most niche and special-purpose play for Apple, since the company is focused on solid-state battery development and production. On the other hand, QuantumScape’s business connections with the likes of Tesla and Volkswagen might make it the least likely acquisition target for the Cupertino company.
- Fisker: in my view, this could be the better fit for Apple. The company is a vertically integrated, “asset light” EV manufacturer. The company’s partnership strategy seems to be aligned with how Apple might choose to approach the industry.
- Lucid Motors: also a full scale OEM, but with more production capacity. The company has recently been merged into the Churchill Capital SPAC, which leads me to believe that it may not be in the market for a new owner.
The Apple Maven’s opinion
Understanding Apple’s MO (“modus operandi”) helps to see why, in my opinion, Apple would likely not acquire any of the electric car companies above.
For starters, Apple has never been aggressive on big-ticket M&A deals. The largest acquisition that the company has ever made was Beats, in 2014, for $3 billion. A competitive bid on the smallest EV company discussed here would likely cost Apple upwards of $5 billion.
Second, Apple is a highly efficient company whose success can be largely attributed to its inventory management and production outsourcing. It would be out of character, in my opinion, for Apple to bring a brand new manufacturing system in-house, when it could strike third-party deals instead.
The recent reports on a potential partnership between Apple, LG Electronics and Magna International illustrate what I believe to be a much more likely business arrangement for the production of the Apple Car.
What do you think Apple should do about the EV opportunity? Acquire a company? Develop everything from scratch? Not get into it at all? Leave your comment below.
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(Disclaimers: this is not investment advice. The author may be long one or more stocks mentioned in this report. Also, the article may contain affiliate links. These partnerships do not influence editorial content. Thanks for supporting The Apple Maven)