I've changed my mind: Why Apple Should buy Tesla

[Auzie]

You just need to replace apple with Google. Google has more advantages than Apple with Tesla.

Added Benefits to Google:
1. Bring their self diving car to the public faster. Regular auto makers are slow as molasses
2. More opportunities for the Google ecosystem.

Added benefits to Tesla
1. Google Street view cars can be Tesla's - easy to get real life high mileage tests for no cost.

Added Benefits to Tesla owners (compared to Apple)
1. More connectivity platforms will be supported. Apple would force degraded experiences on non iDevices (e.g. iTunes on Windows).
2. Technology will not be withheld for years (e.g. Apple with 3G. Apple with LTE, Apple with NFC)

The only Apple thing I own is stock. If Tesla became an Apple device, I'd have to think long and hard about buying a Gen III because I'd be worried about long term compatibility with everything else in my life, intentional degradation (by withholding features) of software on older cars etc. I will not be excited to want to jailbreak my car to get the desired end result.

My opinion is that at this stage Tesla is best positioned to stay as it is. If it were bought, that could shape Tesla's growth differently to what may be the best course for Tesla alone. That risk far outweighs any benefits obtained through synergy. These benefits are easy to obtain without relinquishing full control of the business.

There might be some benefits for say Apple or Google in purchasing Tesla, like bragging rights of owning the coolest car maker.
I do not see any benefits to Tesla in such a move. Tesla would only lose out by becoming peripheral business in much larger organization, with additional layers of controls and bureaucracy, with no significant added value to Tesla core business.

 

[CliffG]

Not gonna happen. For a few reasons, I believe. Among them:

The first one that comes to mind is that if Apple were to tap that cache of cash, they'd have to repatriate it, which leads to a huge tax hit. This is exactly why that cash is out of the country. If it /does/ come back, I think the stockholders are going to want some of it, maybe a lot of it.

Makes no sense for Apple stockholders, makes no sense for Tesla. I'm not sure it makes sense for Berkshire-Hathaway, either; well, it doesn't yet make sense for BH (the EPS and ROI aren't there), and I don't believe it would be good for Tesla to be acquired by BH. Oh yeah, and doesn't BH have a stake in BYD - the competition over in China?

 

[cwerdna]

Owning the next biggest automaker in the world

Not sure what you mean by the above. If you don't look at market cap, Tesla is a nobody in the world auto market in terms of production and sales volumes and # of employees. The largest automakers worldwide are typically GM, Toyota and VW Group (but VW Group doesn't sell many vehicles in the US).

To get an idea of volumes, see below:
Toyota still the worlds biggest car manufacturer - Telegraph
2013: Keep On Truckin Edition - Autoblog (US sales only)
2013 U.S. Vehicle Sales Rankings By Model - Top 270 Best-Selling Vehicles In America - Every Vehicle Ranked - GOOD CAR BAD CAR (US only again)
Google for stuff like largest automaker world 2014.

Compare that to selling tens of thousands of vehicles/year.

I'll have to echo some of the comments I skimmed... It makes no sense for Apple nor its shareholders. I doubt Elon would want to give up control either and it seems like there's no reason for him to want to be bought by AAPL.

The first one that comes to mind is that if Apple were to tap that cache of cash, they'd have to repatriate it, which leads to a huge tax hit. This is exactly why that cash is out of the country. If it /does/ come back, I think the stockholders are going to want some of it, maybe a lot of it.

Yep. I think there would be a major uproar amongst AAPL shareholders if it were used to buy TSLA.

 

[heosat]

I agree that Apple should buy Tesla and I think Tim Cook is likely looking at it right now. I'll do my best to explain my reasoning now!

Apple is a luxury good manufacturer but their key to success isn't hardware, it's software. Likewise Tesla is a luxury good manufacturer but their key to success isn't hardware, it's software. In both cases hardware is a commodity (Samsung trivially copied the iPhone hardware, Tesla trivially built an excellent car and added a proprietary electric drive) but software is the key ingredient which sets them apart. After all, Apple has been renowned for user interfaces and their primary competitive advantage today is that they control the whole stack. Similarly Tesla are the first car company to heavily invest in software and the idea of the connected car, and it will take years for automakers to catch up (as much as we like to think they have an advantage in batteries + electric drive, those can be easily copied).

But, if it was that simple, Apple wouldn't make the obscene profits they do today. To achieve this, Tim Cook has led one of the world's best supply chain teams who produce nearly identical exquisitely designed devices on a scale that has never been seen before in history. They have done this through many different strategies, strategies that can be applied to Tesla as well. Two quick examples: Apple have enormous amounts of cash and can easily lock up all the supply for any single component (they did it for flash memory for years, and certain display sizes are still only available to Apple) and Apple relentlessly purchase companies that produce key technologies so that they can leverage them to their advantage (the technical superiority of the A7 processor is only possible because they have a world class chip fabrication team). Both of those strategies would produce enormous advantages for Tesla.

Alongside this, both Apple and Tesla are similarly run companies. They are lead by an excellent management team and try to control all the aspects of production in a vertically operated manner.

So, for Apple, it makes sense to acquire Tesla. Tesla produce high-end luxury items powered by proprietary software, and want to produce them on scales never seen before. They can provide Tesla with the cash to help them fulfil their goals earlier than was previously considered, which is not only a benefit to Tesla/Apple but to all of us.

Also, something else very strange happened recently: Apple acquired a brand, Beats. It's pretty obvious that Beats will remain a separate operating entity, much like Tesla would. Beats also contained a personality vital to the brand, Jimmy Lovine, who Tim Cook convinced to stay. Why has Apple made this move? I'm not sure, but I doubt it will be the last of this type of acquisition.

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Not gonna happen. For a few reasons, I believe. Among them:

The first one that comes to mind is that if Apple were to tap that cache of cash, they'd have to repatriate it, which leads to a huge tax hit. This is exactly why that cash is out of the country. If it /does/ come back, I think the stockholders are going to want some of it, maybe a lot of it.

This isn't true. Apple can easily borrow the money (they've borrowed tens of billions for stock repurchase) and supply Tesla with ample capital from ongoing US operations.

 

[Auzie]

I agree that Apple should buy Tesla and I think Tim Cook is likely looking at it right now. I'll do my best to explain my reasoning now!

Apple is a luxury good manufacturer but their key to success isn't hardware, it's software. Likewise Tesla is a luxury good manufacturer but their key to success isn't hardware, it's software. In both cases hardware is a commodity (Samsung trivially copied the iPhone hardware, Tesla trivially built an excellent car and added a proprietary electric drive) but software is the key ingredient which sets them apart. After all, Apple has been renowned for user interfaces and their primary competitive advantage today is that they control the whole stack. Similarly Tesla are the first car company to heavily invest in software and the idea of the connected car, and it will take years for automakers to catch up (as much as we like to think they have an advantage in batteries + electric drive, those can be easily copied).

But, if it was that simple, Apple wouldn't make the obscene profits they do today. To achieve this, Tim Cook has led one of the world's best supply chain teams who produce nearly identical exquisitely designed devices on a scale that has never been seen before in history. They have done this through many different strategies, strategies that can be applied to Tesla as well. Two quick examples: Apple have enormous amounts of cash and can easily lock up all the supply for any single component (they did it for flash memory for years, and certain display sizes are still only available to Apple) and Apple relentlessly purchase companies that produce key technologies so that they can leverage them to their advantage (the technical superiority of the A7 processor is only possible because they have a world class chip fabrication team). Both of those strategies would produce enormous advantages for Tesla.

Alongside this, both Apple and Tesla are similarly run companies. They are lead by an excellent management team and try to control all the aspects of production in a vertically operated manner.

So, for Apple, it makes sense to acquire Tesla. Tesla produce high-end luxury items powered by proprietary software, and want to produce them on scales never seen before. They can provide Tesla with the cash to help them fulfil their goals earlier than was previously considered, which is not only a benefit to Tesla/Apple but to all of us.

Also, something else very strange happened recently: Apple acquired a brand, Beats. It's pretty obvious that Beats will remain a separate operating entity, much like Tesla would. Beats also contained a personality vital to the brand, Jimmy Lovine, who Tim Cook convinced to stay. Why has Apple made this move? I'm not sure, but I doubt it will be the last of this type of acquisition.

I agree that Apple is a great company making great products. Apple business is a mature business whilst Tesla is growing rapidly. There is a big mismatch there. Apple just needs to churn out products and come up with new products every few years. There is not much risk in Apple's business.

I fail to see how Apple might gain by taking on additional risk and venturing into a difficult business that they have no expertise in. Apple can stay on cruise control and continue what Apple does best, make great products and generate cash.

Tesla is a very risky enterprise. Tesla has significant hurdles thrown into its path and its management has uphill battles ahead. They can only win these battles if they have their hearts and souls invested and full freedom to act as they see fit. Accountability to a big brother would greatly dampen the spirit of Tesla management team.

I wonder what would Apple be today if it were acquired by Microsoft or some other large company in the last century. I doubt that any i line products would materialize. What a loss that would be for all of us.

 

[dalalsid]

I agree that Apple is a great company making great products. Apple business is a mature business whilst Tesla is growing rapidly. There is a big mismatch there. Apple just needs to churn out products and come up with new products every few years. There is not much risk in Apple's business.

I fail to see how Apple might gain by taking on additional risk and venturing into a difficult business that they have no expertise in. Apple can stay on cruise control and continue what Apple does best, make great products and generate cash.

Tesla is a very risky enterprise. Tesla has significant hurdles thrown into its path and its management has uphill battles ahead. They can only win these battles if they have their hearts and souls invested and full freedom to act as they see fit. Accountability to a big brother would greatly dampen the spirit of Tesla management team.

I wonder what would Apple be today if it were acquired by Microsoft or some other large company in the last century. I doubt that any i line products would materialize. What a loss that would be for all of us.

What you describe is the Tim Cook apple. The Steve Jobs apple is the iPhone and iPod Apple. Either of those could have been duds and sunk apple.

 

[cwerdna]

Samsung trivially copied the iPhone hardware,

...
Apple relentlessly purchase companies that produce key technologies so that they can leverage them to their advantage (the technical superiority of the A7 processor is only possible because they have a world class chip fabrication team).

While I agree w/much of your post (but disagree that AAPL should buy TSLA), there are some factual errors. The components of Samsung smartphones have little in common w/iPhones. Take a look at these, for example.
Samsung Galaxy S4 Teardown - iFixit
Samsung Galaxy S5 Teardown - iFixit
iPhone 5 Teardown - iFixit
iPhone 5s Teardown - iFixit

As for your statement of "world class chip fabrication team", AAPL doesn't have any fabs. The job of manufacturing the processors (e.g. A7, A6, etc.) that go into iDevices is done by companies that do have fabs (e.g. Samsung, TSMC, etc.)

Also, something else very strange happened recently: Apple acquired a brand, Beats. It's pretty obvious that Beats will remain a separate operating entity, much like Tesla would..

AFAIK, it's still rumor, but given all the rumors swirling around for the last few weeks, it looks like it's going to happen.

 

[anticitizen13.7]

I don't think Tesla needs the complication of an acquisition by Apple or Google. Sure, more cash would be helpful, but that comes at the cost of outside interference.

My guess is that Model X sales may provide a cornucopia of cash for Tesla's expansion, because SUVs are becoming the dominant choice of vehicle over sedans.

iPhone (original) -> Tesla Roadster.
Shows what can be done! Sales ok… but not that hot.

iPhone 3G -> Tesla Model S
What people were waiting for and sales go crazy.

iPhone 3GS -> Tesla Model X
Unstoppable.

 

[N4HHE]

Apple needs Gigafactory batteries for iThings.

 

[Auzie]

Apple needs Gigafactory batteries for iThings.

Nothing is stopping Apple from building its own battery gigafactory for its beautiful ithings.

I just hope they make iphone with bigger screen.

 

[DaveT]

Apple needs Gigafactory batteries for iThings.

Apple faces no battery constraints for their products and the battery cost for each device is a very small percentage of the cost of the device.