Tesla acquisition rumors are wild speculation and common in bubbles. Similar speculation happened with bitcoin, gold and the housing market.
To say that Tesla (NASDAQ:TSLA) caught many investors by surprise would be an understatement. The stock is the best performing asset of the year. Tesla is so bullish that it left volatile bitcoin in the dust.
There are several reasons why the stock suddenly exploded. Many say it is the result of an epic short squeeze. Others are betting on the stock because of the Shanghai Gigafactory roll out.
While these narratives helped propel Tesla to an all-time high of $968.99, the stock now needs a powerful catalyst to keep the party going. Unfortunately, the speculation that the company will be acquired by Google appears to be a desperate attempt to keep retail investors bullish.
Forbes published an article on Monday that details how Tesla could dramatically grow by 2030 with the aid of tech giant Alphabet (Google). The authors write that
Google needs to grow revenues and cars are a huge market.
selling software is right up Google’s alley, and Tesla is the leader by far in the car software space.
It seems like the two companies are a match made in tech heaven.
Is the M&A rumor interesting? Yes. Will it happen? Most likely not.
According to the Forbes piece, Google will need to write a check worth $270 billion to purchase Tesla at a premium. That’s more than 25% of Alphabet’s market cap.
Investors don’t just buy companies because they can. They look at fundamental factors like revenue. In 2019, Tesla generated $25 billion in revenue. Buying a car company with $25 billion in sales for $270 billion sounds like an ultra high risk investment. It would take Alphabet way more than ten years just to recoup their initial investment, assuming revenue stays the same.
Also, it is very unlikely that Elon Musk would sell. In 2013, Musk considered selling the company to Google out of desperation. Tesla was nearly bankrupt and its electric cars were not appealing to consumers. Google co-founder Larry Page reportedly “shook on the deal,” but Musk found a way to turn things around for Tesla and ultimately decided not to sell. If he didn’t sell when things looked bleak, he wouldn’t sell now that Tesla’s prospects are rosy.
Tesla’s parabolic rally has been likened by some analysts to bitcoin’s 2017 bull run. During that year, bitcoin surged from $1,000 to nearly $20,000. While trading near $20,000, John McAfee boldly predicted that bitcoin would meteorically rise to $1 million in 2020. Months later, bitcoin crashed. McAfee even admitted that it was a ruse to get more people to buy bitcoin.
In 2011, gold printed an all-time high of $1,921.070 an ounce. At the time, experts were predicting that the precious metal could soar to as high as $7,000. Months later, gold crashed.
In 2008, the housing market crashed because of extreme speculation. Lenders were letting people with no income buy homes they can’t afford. It took time but eventually, the bubble burst.
Extreme speculation at the height of a bubble attracts the greater fools. The strategy allows the smart money to dump positions as close to the all-time high as possible.
We’re seeing the exact same script playing out in Tesla. The speculation that Google will buy the electric car company is nothing but a ruse to make a greater fool out of you, individual investors.
Disclaimer: The above should not be considered trading advice from CCN.com. The writer does not own any Tesla (TSLA) shares. However, the writer owns bitcoin and other cryptocurrencies. He holds investment positions in the coins but does not engage in short-term or day-trading.
Last modified: March 4, 2021 2:41 PM