Quantum Leaps: Toyota Buys Tesla in 2010
Back in 2010, if you wanted to be seen as an eco-conscious consumer who was on the cutting edge of forward-thinking tech, you drove a Toyota Prius. Heck, even George Clooney drove one to the Oscars – and Clooney is cooler than you (or me, anyway). The Prius was such a hot seller that Toyota reportedly looked into the possibility of spinning it off into its own brand.
That, as they say, was then. Today, Toyota has fallen significantly behind market leader Tesla in the race to bring EVs to the mainstream. There are many reasons for that, of course – but big bets on stillborn hydrogen fuel cell technology and more than a little bit of overconfidence in the size of its market lead certainly played a part.
It didn’t have to be that way – and, in fact, Tesla’s trillion-dollar story could have gone very, very differently for Toyota. All they needed was a little bit of money, and a lot of cynicism.
A THING IS WORTH WHAT SOMEONE WILL PAY FOR IT
By any rational valuation, Tesla is not worth one trillion dollars – certainly not when Ford, an industrial giant that has been profitably selling cars for more than a century, is valued at “just” $80 billion. Nevertheless, Tesla’s market cap has, indeed, exceeded “the big T”, and the company is now worth more than Ford.
It’s not just Ford, though. In addition to Ford, investors believe that Tesla is worth more than Toyota, Volkswagen, General Motors, and Honda … combined – and that was nearly $400 billion in the rearview mirror.
To say that Tesla has been a market success is a bit of an understatement, then, and its meteoric rise has been a bitter pill for TSLA shorts (and even some of the bulls and fanboys who sold too early) to swallow. Imagine, then, how Toyota must feel – because Toyota had the chance to buy Tesla, in whole, for $2 billion back in 2010. And we know that, because $50 million bought Toyota about 2.5 percent of the company.
HOW TOYOTA COULD HAVE DONE IT
While not quite the nerdy, edgelord/incel “hero” he is today, Elon Musk was held in pretty high regard by, well – comic-book fans, at least. How else would you explain his inclusion in Iron Man II, where he is presented, not so tongue-in-cheek, as the real-life Tony Stark?
In those days, too, it was widely believed that Toyota’s investment in Tesla would be mutually beneficial, with Toyota’s expertise in mass-production naturally complementing Tesla’s nimble, start-up ability to innovate and pivot.
“The obvious scenarios involve joint manufacturing at Toyota’s former GM joint-venture plant NUMMI,” wrote Edward Niedermeyer, in 2010. That statement was backed up soon after, when an unnamed Downey, CA city councilman seemed to confirm that Tesla would build the Model S at NUMMI, claiming he’d heard it from Ol’ Musky, himself.
That same article refers to Toyota as the undisputed “ industry leader in hybrid technology” – and how could they not have been seen as the natural leaders in the EV race? Sure, they had tested ( and rejected) Panasonic’s then cutting-edge li-ion batteries. Toyota’s reasoning was never made public, but Menahem Anderman, then-president of a California-based consulting firm called Advanced Automotive Batteries, theorized that, “ cost is critical (to Toyota’s decision), and we still don’t know enough about long-term durability.”
This is where our automotive time-travelling Sam Beckett comes into play.
“Let Tesla take the risk on li-ion for Toyota,” they argue, in some high-powered board meeting. “It’s a no-lose situation. If Tesla bets the farm on li-ion and fails, we are proven right and move forward as the leaders in hybrid tech. If Tesla succeeds with li-ion, we can reap the rewards, and rake in the profits.”
Toyota could have – indeed should have – bought a controlling stake in Tesla, left Elon at the helm, and muscled all the other carmakers trying to greenwash themselves with small stakes in Tesla to fend for themselves … which is what they all did, anyway.
If only it were that easy.
NOBODY WOULD BELIEVE YOU
Let’s face it, if I had sat down at a Toyota board meeting and told everyone present that Tesla would be worth more than every other carmaker combined in ten years’ time, no one would have believed you. Heck – when Daimler sold 4 percent of Tesla for $780 million in 2014, and almost broke their arms patting themselves on the back at the sheer genius of their financial guys.
“We are extremely satisfied with the development of our investment in Tesla,” Daimler’s then-Chief Financial Officer, Bodo Uebber, told the Wall Street Journal. “But it (the investment) is not necessary for our partnership and cooperation. For this reason, we have decided to divest of our shares.”
That 4 percent share of Tesla, today, would be worth more than $40 billion. Daimler’s total market cap, as I type this, is just north of $100 billion.
If you like watching people squirm, you could hardly pick a better subject than poor Bodo Uebber, trying desperately to explain to Daimler’s board what, exactly, led him to piss away 40 percent of the company’s market cap for a $780 million return … but those people wouldn’t have believed him, either, if he’d told them what Tesla’s stock would do just seven short years later.
Tesla’s valuation simply boggles the mind. Even if our Quantum Leaper could pass every test they threw at him, just came out and told the board at Toyota, “I’m a time traveler! Long TSLA! Buy as much as you can! Stop trying to make hydrogen happen, hydrogen is never gonna happen!” I don’t think they’d believe it. If they saw him hop into a time machine, H.G. Wells-style, push on the lever and bugger off into the future, I don’t think they’d have believed.
“Put in another $50 million,” is probably as far as Mr. Beckett would get. “And another $50 million into hydrogen.”
THIS IS WHAT HEDGING YOUR BETS GETS YOU
I have this friend, an engineer named Dustin Hanna, who told me the most depressing thing I’ve ever heard while we were at lunch one day. He said, “you and I will never be rich,” in between bites of Jamaican food. “We’re too smart.”
I must have looked confused, because he kept going.
“See, a stupid person will see some idea on TV or hear about some get-rich-quick scheme and buy into it,” explained Dustin. “They’ll mortgage their house, empty their savings, and max out their credit cards because they believe in it so much. 99 percent of the time, they’ll lose it all. Everything. You and me? We’re too smart to fall into that trap. Even if we believe in something, we put in a little bit here – a little bit there. Only what we can afford to lose, and we’re smart, right? So that’s not a big number.”
I just nodded, stupidly intelligently.
“Here’s the thing, every once in a while, that wild, hail Mary bet pays off, and you get a 1,000:1 return on your money,” he said. “The dumb guy who put in $150,000 he didn’t have to begin with? That guy has $150 million now, and he thinks he’s the smartest guy in the world. He has no idea how lucky he is because he was too stupid to figure out what the odds against him were from the beginning. You and me? We put in $100 or $1,000, if we put in anything at all. Because we’re ‘smart’.”
I walked away from that lunch feeling a lot dumber than when I went into it, but experience has proven Dustin right again and again. The richer Elon gets, the more ridiculous his Tweets seem to get. The higher TSLA climbs, the more the Teslanaires pound their chests over their own genius. The smart people? The really, really smart people like poor Bodo?
Not so much.
No, Toyota would have never swung hard on Tesla. They were – and are! – too smart for that kind of thing. All they can do now is try to buy a politician or two to try and swing things back their way, or maybe run a few nasty commercials about EVs. Even then, I think they’d agree that buying ads would be a whole lot easier with an extra trillion dollars.
Conundrum on Nov 11, 2021
Toyota operates in the real world. The stock froth EV market operates on Wall Street. Do you think Toyota really cares only about its stock market valuation? Or executive "compensation" depending on said stock market valuation? If it did, it would have been using its $36 billion cash hoard to buy its stock back. Like so-called red-blooded US companies keen on seriously over-paying for merely average executive talent have done, such as Boeing and GM. I mean, what's really happening is greedy corporate execs seriously wanting to overpay themselves via stock options bid up the stock price using company money and to hell with everyone else. This is the current "business" model. A scam. It's based on no increase in corporate productive capacity or efficiency, merely paper worth. Tesla's about half and half down that road. Building capacity, yet gilding the froth stock lily too. Still, with the usual Muskian nonsense going on recently about him not wanting to share the wealth via taxation with the citizens of the country that bankrolled his meteoric rise, Tesla shares have fallen 20%. Seeing that the "market" value was naught but froth, aerated foam, and paper anyway and nothing much to do with physical assets or company earnings, nobody is yet panicking, except those who were about to cash out and adjourn to the Cayman Islands or New Zealand. Musk, by reducing his net worth but with the legal need to cash in some of his stock by year's end, seems to my jaundiced eye to have decided -- if the USA wants my taxes from personal stock sales, I'll rattle the market to reduce its value and the amount of taxes I therefore have to pay, thereby flipping the bird at everyone else, viz his stockholders and the country -- everyone but his own special wonderful self whose genius passeth mortal understanding. He knows his audience well, much as Edgar Allan Poe describes in his classic short story "The Purloined Letter". He's a master of misdirection with those stolid people who think of themselves as business types or wanting to join a religious-style sect. Toyota on the other hand uses logic anyone can understand for not blasting out EVS like BB shot as corprate flavor-of-the-month. . https://www.reuters.com/business/cop/toyota-says-large-parts-world-not-ready-zero-emission-cars-2021-11-11/ That's why Toyota isn't going all out EV, yet. Hard to flog EVs where there is little electricity for charging batteries, just enough for cellphones. But North Americans don't think of that. The world as it looks outside their personal window is the world everywhere to these unimaginative folk, and so dimbulb niche-first-world-only assertions like a lot of those in the above comments make me laugh. Toyota's the world's lowest cost producer of the bigger automotive firms, with assembly methods and worldwide factories not overly reliant on robotech, merely old-fashioned logic and a labour/capital split that minimizes overall cost. It also apparently possesses some ethics beyond executive greed. How un-American!
Mcs on Nov 12, 2021
@conundrum: "That’s why Toyota isn’t going all out EV, yet." Bringing out 15 new BEV Models by 2025 isn't going all out??? WTF?? Fifteen!! Think about it. In just 4 years. https://www.theverge.com/2021/4/19/22391738/toyota-electric-vehicle-strategy-bz4x-concept-subaru Here's a Toyota press release where they are investing $3.4 billion in the US for battery production. That's not going all out?? https://global.toyota/en/newsroom/corporate/36193702.html $3.4 billion not enough? Here's where they are spending $13.6 billion for solid-state battery technology. They also own over a thousand solid -state battery patents. Not going all out??? https://www.motortrend.com/news/toyota-battery-bev-hev-solid-state-future-investment/
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