Does an Apple acquisition of Tesla make sense?

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Originally published at https://evannex.com on May 30, 2019.

An outside observer might believe the ongoing smear that has plagued Tesla for the past two years: the company is spending money at an unsustainable rate, and as a consequence, will soon be unable to fund operations. That’s nonsense, but it is true that the company’s spending on physical plant, R&D, infrastructure development, and new models is putting some strain on Tesla’s ability to raise funding in the capital markets.



Image: Smarter Analyst

At the same time, rumors (and nothing more) about Tesla as an acquisition target surface on a regular basis. None is more intriguing than the rumor that Apple may have an interest in acquiring Tesla.

As reported in Electrek, a senior research analyst at Roth Capital Partners, Craig Irwin, recently went on CNBC and revealed, "Around 2013, there was a serious bid from Apple at around $240 a share... This is something we did multiple checks on. I have complete confidence that this is accurate. Apple bid for Tesla. I don’t know if it got to a formal paperwork stage, but I know from multiple different sources that this was very credible."

Irwin believes Apple could still have interest in a deal. Although this remains conjecture, it could be a useful thought exercise to, at least, consider the possibility — especially in light of the sudden, steep stock price decline. In an interesting discussion of the subject, George Paolini lays out the case for an Apple-Tesla merger. In this post I’ll explore Paolini’s points and add a few comments of my own.

First, something that everyone who follows this column understands — Tesla is NOT a conventional auto company. It is in part a consumer technology company.

So, to Paolini’s points (noted in italics in the following discussion):

Tesla is a consumer technology company. Apple is a consumer technology company. Both companies are making high-end gear that has comparatively high profit margins. It’s a perfect fit.​

Poalini makes a good point, but there’s more to be said on the subject. Tesla has vertically integrated its automotive products and does much of its manufacturing in-house. Apple has taken a different route, designing its products in-house, but outsourcing most manufacturing. How would Apple handle Tesla’s approach?

Apple has had years to develop and refine its customer service approach and could adapt it to help Tesla in an area where they're still maturing — that would be a very positive development.

Apple understands marketing and has one of the most effective marketing campaigns on the planet. It could use that expertise to further popularize EVs, to soften the fear of autonomous vehicles, and to further strengthen the Tesla brand.

Finally, Apple understands the mass market and how to manage growth within it.

Tesla needs a White Knight. Elon Musk is a character and has done what no other human could, single-handedly changing the automotive industry and focusing the world’s attention on renewable energy as the future for transportation. But, as is the case with many founders, he has reached his capacity to govern…

Tesla already has a substantial revenue stream, but it needs additional capital reserves to fund the company’s spending on physical plant, R&D, infrastructure development, and new models. Apple has very deep pockets and could provide the capital necessary for sustained and rapid growth.

[Tim Cook] needs a visionary, or at least a vision. Elon has laid it out for Tesla: to accelerate the world’s use of sustainable energy for transportation and the home and beyond. It’s simple, it’s bold, it’s brilliant, it’s do-able…

Apple’s vision for computing has reached a plateau. Sure, new technologies and even breakthrough products could emerge from Apple, but those products would likely all remain within the same hardware/software categories. Apple’s brand could be extended to incorporate Elon’s vision of “sustainable energy for transportation” along with autonomous vehicles, fleet autonomy, and the entire ensemble of energy products. The potential for growth and revenue is significant.

So what is that vision? It’s all about the home. That’s right. Tesla gets Apple in the home. Tesla is much, much more than a “car” company. It’s ultimate vision, with Solar City and Powerwall and Tesla is a system of renewable energy from home to auto and beyond. Apple has been a laggard in getting into the home. Amazon has Alexa. Google has Nest. Apple is a follower in this space.

As autonomous vehicles become the norm over the next decade, the “car” becomes an extension of the home. After all, you won’t have to “drive,” so occupants can be entertained in a variety of ways, can learn, can work, all inside a vehicle that moves from point A to point B autonomously.

By the way, the audience inside a vehicle is captive, offering a whole new array of marketing and product opportunities that Apple could cultivate.

[Apple is] … way behind Uber, Google and others that have been investing heavily in [autonomous transport]. Apple needs to not only catch up, but leapfrog the competition.

Most objective observers believe that Tesla is way, way ahead of Uber and Google in autonomous transport, having the benefit of big data coupled with machine learning to make their autonomous system improve at a rate that other competitors cannot match. The acquisition of Tesla by Apple would provide Apple with an instantaneous way to leapfrog both Uber and Google.

Closed ecosystems. Apple has built the largest consumer tech company on a closed ecosystem. As much as it pains me to say so (coming from the world of Unix and open source), it is a brilliant strategy. By controlling every aspect of its hardware, software and services, Apple can provide a user experience that is unparalleled in the industry.

Apple’s approach and philosophy dovetails nicely with Tesla’s closed ecosystem. Like Apple, Tesla has a closed infrastructure, a unique design philosophy, proprietary software, and a build-it-and-they-will-come attitude would not clash with Apple’s.

Fiercely loyal customers. Ever talked to a Tesla owner?

The question is whether the intense loyalty of Tesla’s existing customer base would translate to Apple. Tesla’s brand is VERY strong, particularly among younger demographics who aspire to own a “Tesla.” Would Apple be willing to maintain Tesla as a unique and recognizable brand, or would they fold the company into ”Apple?” Would that result in an erosion of the enthusiasm among Tesla owners and wannabes?

[Tesla owners] are proud, they are excited, they are adamant. Same with most Apple users, although this has dipped as of late. But each company has locked their users into an ecosystem. And the users love it, because the highly-integrated experience it provides cannot be matched by their respective competitors.

The ecosystem is the major strength for both Tesla and Apple. The real question is how to create synergy within the two ecosystems so that the resultant products that emerge from them are world-beaters.

It’s all about “showing me the money.” Tesla is scrounging for funding, while Apple has a big, big problem to the tune of about $245 billion that it needs to invest wisely. How many stock buybacks can the company do? Investors want to see those funds used to increase their shareholder value.

I believe that this isn’t about the money. Rather, like most things, it’s about the people—specifically, the people at the very top of the org chart. Could Tim Cook and Elon Musk play well together, or would Elon’s bold personality (not to mention his predisposition to use Twitter to communicate) play havoc with Apple’s more buttoned up corporate culture?



Above: Years ago Elon Musk discussed Apple's rumored efforts to try it's hand in the automotive space (Youtube: CNBC)

Could Tim and Elon come to an agreement on their roles and would they abide by that agreement. Would Elon be forced to leave, thereby causing the Tesla vision to fracture? Those and dozens of other people-related questions are what could cause hesitancy among the parties.

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Apple was once Tesla-like, a young ‘non-corporate’ upstart—an underdog—battling industry giants like IBM and then Microsoft. It struggled for years, but then it developed a line of breakthrough products that changed everything. As it grew, the perception of the company changed. It became more “corporate” and less agile. It changed, and its brand image, although still well-respected, changed as well.

Tesla is like a young Apple in the automotive industry. It’s a brash and agile upstart that changed all the rules, and against the odds, succeeded. Its brand is among the hottest in all the technologies and its potential is enormous. Like a young Apple, it has rabidly loyal fans and viciously negative enemies. Powerful interests want desperately to see it fail. Tesla is the David that threatens Goliath, and that romantic notion makes it a star.

In a way, it’s ironic that Tesla is what Apple was. The real question is whether it’s time for Tesla to become what Apple is. Some Tesla fans say “no,” suggesting that merging Tesla into a big company culture would kill innovation and stifle the company’s overriding vision. But others, seeing the potential benefits of a merger, suggest that becoming more Apple-like would allow the company to more easily achieve the vision defined by Elon Musk.

At the end of the day, a merger of Apple and Tesla probably won’t occur. But then again, stranger things have happened.

Roger Pressman

Owner, Apple Macintosh, serial number 000787 (circa 1984)

Owner, Tesla Model S, signature, VIN 000184 (circa 2012)

Originally published at https://evannex.com on May 30, 2019.
 
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