Forget Apple Inc. (NASDAQ:AAPL) buying Tesla Inc (NASDAQ:TSLA). The odds, according to InvestorPlace writer Tom Taulli, are less than 5%, perhaps non-existent. No, there’s another number that you might want to focus on when considering an investment in Tesla stock.
Tim Cook recently announced that Apple was establishing a billion-dollar fund to create advanced manufacturing jobs in the U.S. Part goodwill gesture, part public relations effort, part good business, Cook recognizes that Apple’s success is intertwined with a healthy American economy.
On May 12, Apple made its first investment from the fund, awarding Corning Incorporated (NYSE:GLW) $200 million to put toward research and development and capital equipment needs for its glass business. Apple, not coincidentally, uses Corning as a supplier of glass screens for its iPhones.
“Corning is a great example of a supplier that has continued to innovate and they are one of Apple’s long-standing suppliers,” Apple Chief Operating Officer Jeff Williams said in a statement. “This partnership started 10 years ago with the very first iPhone, and today every customer that buys an iPhone or iPad anywhere in the world touches glass that was developed in America.”
While this move might seem self-serving to some, it shows just how important technology and innovation is to economic development in this country or any other … and that leads to an important factor when it comes to Tesla stock.
Leveraging Innovation
Apple claims that it’s indirectly responsible for creating 2 million jobs in the U.S., including 80,000 Apple employees in all 50 states. Since 2008, U.S. app developers have made $16 billion from the App Store. Over the past 19 years, Apple has directly created 75,000 jobs in the U.S. — a compound annual growth rate of 15.7%.
It’s impossible to overstate the importance of Apple to the U.S. economy; the same applies to TSLA.
More than four years ago, I wrote an article entitled Why America Needs More Teslas, in which I laid out why the risks associated with owning Tesla stock were worth it. It’s up 1,000% since then.
Why such dramatic gains? Innovation, of course. The kind that Apple’s investing $1 billion to help nurture.
Tesla’s Value to the Economy
Well, first consider the direct contribution Tesla’s made regarding job creation. In the past four years, Tesla and SolarCity created 24,551 jobs, perhaps as many as 90% of those in the U.S. — a compound annual growth rate of 53%.
So, if Apple created jobs in the U.S. at a rate of 16% per year, and Tesla/SolarCity did so at 53% annually, one might argue that Tesla’s contribution to American job creation is almost four times as great on an, ahem, apples-to-apples basis.
I get that Tesla didn’t spend anywhere near the $50 billion that Apple spent in fiscal 2016 with its 9,000 U.S. suppliers and manufacturers, but again, it’s all relative.
In fiscal 2016, Apple had $215.6 billion in revenue. That means it spent 23.2% of its revenue with U.S. suppliers. At the same rate, Tesla would have spent $1.6 billion on U.S. suppliers.
According to an annual study by the Kogod School of Business at American University, the Tesla Model S is 75% American made. The rate’s not higher because the battery is made in Japan. However, it’s estimated that the new Model 3 will be 95% American made because the battery will be made in Nevada.
Tesla had $7 billion in revenue in fiscal 2016; it spent $7.7 billion producing that revenue for an operating loss of $667.3 million. If you use the 75% number from above, it’s conceivable that Tesla spent as much as $5.8 billion, or 82.9% of its 2016 revenue on U.S. suppliers.
Bottom Line on Tesla Stock
I’m not saying you should buy TSLA because of the company’s contribution to the job market or the U.S. economy — significant given its size — but if you already own it, you ought to be proud of the work it’s doing to push the innovation envelope.
Ultimately, it might go bust, but what it’s doing in the automotive and energy industries will pay dividends for the country for years to come.
That’s something tangible a lot of stocks can’t claim.
As of this writing, Will Ashworth did not hold a position in any of the aforementioned securities.
