As recently as a year ago, many business and investment experts remained extremely cautious about the future of Californian electric automaker Tesla Motors [NASDAQ:TSLA]. Since then, Tesla has not only proven its worth by paying off nearly half a billion dollars of U.S. Department of Energy low-interest loans, awarded to it under the Advanced Technology Vehicle Manufacturing program nine years ahead of schedule, but it has also dramatically increased its production volumes of its Model S luxury sedan. Last year also marked the year Tesla started to turn a profit, and the year in which its Model S was awarded accolade after accolade.
With that newfound profitability and improved sales — not to mention an almost relentless growth of its network of Supercharger stations across the U.S. and Europe — Tesla is now the subject of several rumours suggesting that it may even be acquired in 2014. One possible buyer, sources say, include one of the ‘Big Three’ Detroit automakers, most likely General Motors. Another possible buyer being paraded by analysts and business reporters is technology giant Apple, after Andann Ahmed, an analyst at German investment bank Berenberg, wrote an open letter to Apple CEO Tim Cook last year begging him to acquire the company.
But while we’re pleased to see Tesla now occupying a position where it’s considered valuable enough to be acquired by a larger company in a merger that would have thunderous repercussions throughout automotive and consumer electronics industries, we’re hoping Tesla remains independent for the time being and would go as far as to suggest that a Tesla Acquisition right now would be a really bad idea.
Before we go any further however, we feel it’s pertinent to add a little disclaimer: we’re not business analysts. We’re not financial advisors. We don’t even cover Wall Street. We’re a bunch of EV advocates and automotive journalists. What we’ve got to say today is taken from our point of observation, one which doesn’t claim any sway or position of authority on financial matters but which tells it as we see it from the arena of plug-in cars.
First up, we should deal with Tesla Motors itself. The company’s vision, and its purpose. From where we stand, Tesla Motors has managed to redefine what an electric car is. It has redefined what an electric car is capable of, and moreover, it has helped kick-start what many like to call the ‘EV revolution’. Sure, Tesla has had some really tough times — and probably will in the future too — but without Tesla’s original super-sexy two-seat Roadster, many believe the mainstream auto industry were spurred into making their own plug-in cars.
Back then — and we’re talking almost a decade ago — Tesla was little more than an annoying startup company from an upstart entrepreneur. Automotive giants like GM, Nissan, Ford, Honda, and Toyota scoffed at Tesla’s notion that it would revolutionise the world. They scoffed even more at the idea that Tesla would ever become profitable yet alone produce a mass-market electric car.
Yet Tesla did, often running rings around more established brands thanks to its fresh-faced approach to the automotive market, its innovative retail stores, light, airy, clean factory, and Silicon-Valley thinking. As Tesla CEO Elon Musk has himself admitted in the past, Tesla is “closer to an Apple or a Google than to a GM or Ford.”
In addition to the way it thinks — more like a software and hardware company than an automaker — Tesla’s size has helped it remain extremely flexible, responding quickly to any problems thanks to comparatively small but incredibly focused engineering teams. The ability to update cars over the air using built-in 3G cellular connectivity — something other automakers are only just beginning to trust — also helps Tesla keep its overheads light and its responses nimble and highly focused.
This is in massive contrast to the traditional automotive model of multi-continental worldwide design teams, long, drawn-out recall campaigns, and a network of franchised dealers who may or may not act in accordance with an automaker’s prescribed service methods.
General Motors, arguably the biggest success story of the mainstream automotive industry of recent years, is a very different beast to the one which asked for a Government bailout in the dark days of the last recession. It’s leaner, greener, and thanks to the Chevrolet Volt and Chevy Spark, sells a fair number of plug-in cars. Most importantly, it too is out of debt, loan-free and turning a profit.
GM makes plug-in cars already, so what would it gain from acquiring Tesla? The first, most obvious thing would be the Tesla brand. Yet GM has recently paired down its brands in an attempt to redefine itself as a more focused, less cumbersome automaker. In Europe for example, it is about to remove the Chevrolet brand from sale altogether, focusing on just the Opel/Vauxhall and Cadillac brands. For an automaker which is keen to make itself more streamlined, acquiring Tesla for the brand alone seems unlikely.
What of the technology then?
Out of the entire plug-in industry, Tesla’s drivetrain, battery technology and power electronics certainly beat anything else out there, one of the reasons that companies like Toyota and Daimler — who also happen to own shares in Tesla — have turned to Tesla to produce all-electric drivetrains for their own brand EVs: the RAV4EV, Smart ForTwo ED, and Mercedes-Benz B -Class ED.
In the incestuous world of the automotive industry, a Tesla acquisition by a major automaker like GM wouldn’t necessarily mean that Tesla’s relationship with Toyota and Daimler would have to end. But with a larger automaker controlling the purse strings, Tesla’s speed of innovation and flexibility — something which has helped it stand out against the rest of the plug-in world — could be at risk. Yes, an acquisition could mean more development money and perhaps even dedicated R&D labs for Tesla, but it could slow down the speed at which those innovations are seen by Tesla customers.
Then there’s the impact on Tesla and its fan base. In short, allowing Tesla to be acquired by a major automaker would have massive negative connotations for the brand among its loyal fans. Many Tesla fans and owners love the company because it isn’t like everyone else. They want a company that isn’t like other automakers. They like Tesla’s retail models, love the company’s Silicon-Valley values, and may well even abandon the brand if it becomes part of a larger multinational automaker with showrooms, disinterested dealers, unclear pricing and incompetent service staff.
Finally, perhaps we should refer to Elon Musk, who once famously joked that if GM called to try and buy Tesla, it wouldn’t have the money to do so. At the time, it was likely a flippant referral to GM’s own (at the time) dire financial situation. But we wonder if Musk’s attitude to that call would be any different today? Despite being a serial entrepreneur, given Musk’s dismissal of GM and many other major automakers’ attitudes towards EVs, we don’t think it would.
What about Apple?
GM’s acquisition of Tesla might be good for GM’s plug-in vehicle knowledge and technical prowess, but it would be a bad thing for Tesla. So what about Apple, the tech company which has seemingly lost its way since the death of its cofounder and former CEO Steve Jobs?
Many analysts believe an Apple acquisition of Tesla would be a good move for both companies. After all, Tesla’s philosophy towards marketing and customer service is built form the very same hymn sheet as Apple’s. That’s hardly surprising: George Blankenship, recently retired VP of sales and marketing at Tesla, was the same sales guru responsible for the Apple store concept.
But while Apple and Tesla could be said to be cut from the same cloth, there are still some warning bells which we think could spell problems for both companies if an acquisition of Tesla by Apple was attempted.
While Tesla is by its own admission more like Apple than Detroit’s Big Three, Apple’s current relationship with the automotive world extends to providing in-car connectivity, not building and making cars. And while Apple’s focus of balancing the seamless integration between its own hardware and software is something also shared with Tesla we’re not convinced that the two companies are a perfect marriage right now.
That’s because while Apple stands to gain a lot of good things from Tesla — like a whole new market to explore, autonomous driving technology, new battery tech and the potential to be part of the biggest battery manufacturing facility the world has seen — we can’t see what Tesla would gain from Apple because Tesla has always been very self-contained.
Tesla, like Apple, has always had a very focused attitude to hiring staff. It doesn’t just hire anyone. It actively goes out and finds the experts it needs, and then sets about hiring them, often with a whatever it takes attitude. The result is that both companies have some of the best minds in their respective industries. Both have great hardware and software engineers. Neither need the acquisition to gain more and are more than successful in acquiring the people they need for the job they need.
Both companies are fiercely independent. Fiercely, almost dogmatically controlled by a singular vision. Sure, Elon Musk shares a lot of personal qualities with the late Steve Jobs, but that doesn’t mean the two companies should become one. And in an age when Apple is busying itself to bring its technology to more people than ever before — and being criticised for a general lack of innovation — we think it needs to concentrate on the sector is knows rather than enter one it knows nothing about. Entering a market known for being low profit and high risk shouldn’t be on its list of priorities.
In other words, while Apple and Tesla could work, we don’t think Apple is in the right place to buy Tesla, and frankly, Tesla doesn’t need Apple.
Tesla has its own empire
While we may have at one time viewed an acquisition of Tesla as a positive thing for Tesla however, we’re now against it for one simple reason: Tesla is part of its own empire.
That empire, albeit one which Elon Musk fronts, encompasses everything from the future of space travel to the future of energy. Solar City, for example, is a perfect partner for Tesla’s zero emission electric cars. Together, the two firms are forging new pathways in the world of off and on-grid energy storage and backup, smart grid connectivity, and solar generation.
And while you may find it tough to see what the link is between SpaceX and Tesla Motors (other than Musk’s involvement in both) both companies complement each other: in both his roles at Tesla and at Space X, Musk is preoccupied with pushing boundaries, challenging his engineers to find new and better ways of doing things. All with the net goal of reducing waste and finding a more efficient, more effective way of doing something.
Some say that Musk will sell Tesla in much the same way that he sold PayPal, another company he founded. But the Musk today is a far cry from the one who made his fortune figuring out a way to send money from one place to another.
Musk is on a mission. And we’re not sure that mission is one that GM, or Apple, can handle.
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