Tesla (TSLA 3.33%) has disrupted the global auto industry, and is easily the most valuable automaker on earth. However, investors are also giving the company a lot of credit for what they expect it will do, not what it's already done. In coming years, the company will need to spend enormous amounts of money to build out its manufacturing capacity, while continuing to invest in technology and its products to continue growing.
On the Dec. 8 edition of "The Wrap" on Motley Fool Live, host Jason Hall made a bold proposition: Tesla should acquire Ford (F 1.03%). Not only would this go a long way toward jump-starting the company's growth needs by acquiring Ford's massive global manufacturing footprint, but Tesla founder and CEO Elon Musk would gain a leg up in fully disrupting the auto industry. Only this time, with the manufacturing heft of one of the industry's heavyweights.
Transcript:
Jason Hall: Tesla is in a pretty good shape as far as their balance sheet, they have a good bit of cash. Not a whole lot of debt. But that's going to be changing over the next few years because the company has to build out scale. It has to build out more manufacturing capacity all over the world if it's going to continue to grow. That's expensive, it's a big upfront investment that takes multiple years to pay off before those factories ramp up and start getting to profitable capacity.
I want to make a proposal to Tesla. This is something that Elon Musk recently said, that he would be listening if approached about discussing merging with another large automaker. I think it's time that Tesla needs to make a serious concerted effort to buy Ford Motor Company. I know some of you out there are either laughing or going through some version of outrage right now. Your outrage could be because of two very different impressions of Tesla and Ford.
Now I'm going to do a screen share to show you why I think this actually would be a great idea. [Shares screen] We'll start here. You guys should be able to see, with the purple is Tesla and the yellow is Ford Motor Company. This is the market cap. Less than $37 billion market cap for Ford, $613 billion market cap for Tesla right now. Tesla's selling $5 billion of stock right now because the stock is so rich right now. That is the smartest way to raise capital. If there is demand for that stock, you sell as much of it as you can and generate a tremendous amount of cash.
Now, I'm going to flip here and we're going to look at some financial metrics. So what do you see here? This is, and this is back over the past three years, Ford Motor Company has consistently generated more than $16 billion in cash from operations. That number absolutely skyrocketed after its most recent quarter. Almost $23 billion in cash from operations versus $4 billion in operating cash from our friends over at Tesla. Free cash flow. Again, it's enormous how much free cash flow Ford Motor Company generates.
Now, why does all of this matter? All of this matters because at this point, one of these two companies has not gotten to a significant global manufacturing scale and one has, and that's Ford. Ford has a couple hundred plants around the world. It has absolute expertise in manufacturing at the kind of scale that Tesla needs to get to eventually, if it's going to be worth what investors are paying for the company today.
Sure, it has optionality. It's developing battery technology and constantly improving that, that has applications and a wide variety of ways besides just being in vehicles. There's the potential for it as a solar company; manufacturing solar panels, installing solar panels. There is some optionality.
But at the end of the day, the company's biggest business for a very, very long time is going to be manufacturing and selling automobiles. A great way to do that is to work with a company that has proven, for decades, that they are really good at manufacturing automobiles at absolute scale.
Here's the second thing I want to say. I think this is something that's easy to miss. There's no doubt about it that Tesla has fundamentally changed the automotive industry permanently. Tesla could disappear overnight, and the way automakers think about cars and the cars that they are trying to make in the future, looks different now than it would have if Elon Musk had not have created Tesla. There's no doubt about that. There has been some serious disruption from the outside.
Now, you really want to change the global auto industry? Change it from the inside. Take over Ford, start rebuilding everything they do, accelerate every single timeline that they have about shifting away from internal combustion engines, and that's how, Elon Musk, that's how you get to the EV future that you think is going to be the way people travel around the world.
Now, let me tell you why its probably not going to happen, and it's very simple. It's described in the four letters that are on almost every automobile that the company makes, F-O-R-D, Ford. The Ford family still has de facto control of the company. They have a minority of shares, but the shares that they own, essentially control a majority voting stake between the Ford family and between affiliates and relationships that they have with other large shareholders. They can say no to any deal.
So I'm not really even talking to Elon Musk, I'm talking to the Ford family. I think that the best thing for the automotive industry that could happen, honestly, would be for Tesla to take this bold step and start changing it from the inside out.
