One is the seventh biggest company in the world by corporate earnings, and the largest consumer electronics company in the world. The other is America’s newest and smallest bone fide automaker. One sells mobile telephones, personal electronics gadgets and computers, all of which run its special proprietary software. The other makes the world’s fastest production electric cars.
They’re both high-tech companies from Silicon Valley. They both have driven, intelligent CEOs. And they both need large amounts of lithium-ion batteries to secure future production.
Beyond these simple facts, there’s little that joins Apple [NASDAQ:APPL] and Tesla Motors [NASDAQ:TSLA] together, but that doesn’t stop financial pundits from expressing a belief every six months or so which suggests Apple is in the process of acquiring Tesla, or suggesting that it does so. But while it may seem like a marriage made in heaven to masses of tech journalists and financial pundits, we’d like to point out just how Apple and Tesla really aren’t made for one another — and how a recent Business Insider post completely misses the mark when it posits that Apple could help Tesla fix its mass-production woes.
Making a car is nothing like making an iPad
It’s a stream of logic we’ve heard plenty of times before: Apple manages to produce and sell massive quantities of computers, iPhones, iPads and iPods every time a new model is released. As well as ensuring there are enough models for those trademark queues on launch day, Apple manages to ensure — with a few notable exceptions like its recent Apple Watch announcement — that products aren’t unveiled until they’re actually ready to go to market.
If Apple can do it, posit the pundits, why can’t Tesla?
Despite a recent proclamation by IHS Automotive which deemed the Tesla Model S more iPad than car, the process of manufacturing a car involves far more discrete steps than manufacturing a consumer electronics component. As well as requiring more space due to the physical differences in size, building a car requires attention to mechanical as well as electronic and ascetic details on a level not found in an Apple production line. And while no one can argue that Apple’s designs — often incredibly challenging from a manufacturing point of view — really do push engineering boundaries, cars have hundreds — or thousands — of moving parts which have to work together in harmony to produce a finished vehicle. Despite the Tesla Model S having far less moving parts than a similarly-specced gasoline-powered vehicle, the mechanical engineering of any vehicle is well beyond that of a consumer gadget.
What’s more, because of the economies of scale involved and the cost of the final product, it’s far easier for Apple to write-down any faulty or incorrectly-produced products that it is for an automaker to do the same thing. And that’s long before we even consider things like crash-test and safety systems, something Apple has no experience of.
Then there’s design cycles: in the electronics world, entire ranges can be completely redesigned every year. In the automotive world, designs have to last for eight years before the next model comes along.
Apple doesn’t actually make its products
The next point we’d like to make about Apple and its manufacturing process is that for the most part, Apple doesn’t actually produce its own products. Instead, it subcontracts production to a number of companies around the world, most noticeably in China, where labour is cheap and production costs are low.
It does this to keep its bottom line healthy. Spend less on production, and you can spend more on what’s inside the product, like faster chips, improved graphics or larger capacity storage.
Despite this, Apple still retains overall control of its production processes, which we’ll admit does mean that it still understands how its products are made. But unlike Apple, Tesla makes everything from its body panels to the drivetrain, sub-contracting out smaller components for custom-manufacture or parts supply.
This in-house manufacturing ethos — further expanded when Tesla’s Gigafactory comes on line — allows Tesla the kind of control over its production process that Apple doesn’t have. And as Tesla recently demonstrated when it started producing autonomous-drive capable cars, Tesla’s in-house method allows it to quickly implement changes to production in a way that Apple cannot.
Elon Musk isn’t ready to leave
Spend much time with Tesla CEO Elon Musk, and it’s clear to see that he is one driven CEO. Like the late Steve Jobs, Elon Musk wants to change the world as well as make some money doing so. But unlike analysts who suggest Musk would allow the acquisition of Tesla by an electronics giant like Apple, cashing in on the deal in order to focus his attention elsewhere, we think Musk is in it for the long run.
That’s because time and time again, during everything from one-to-one interviews to annual shareholders’ meetings, Musk reiterates his desire to see the world weaned off oil and onto something more sustainable. Like all great CEOs, Musk believes explicitly in his product, and it shows. What’s more, Musk has said time and time again that Tesla’s goal isn’t just to bring luxury electric cars to the privileged few: it’s to bring about a future where everyone can afford to drive a clean electric car.
That single wish currently drives Tesla, a wish which has not only given rise to the Gigafactory, but the promise of the first-truly-affordable, 200+ mile electric car in the 2017 Tesla Model ≡.
Delays and setbacks to that timeframe aside, that goal — of affordable, mass-produced, long-range electric cars — is what keeps Musk at Tesla. And while Tesla may not be the first to achieve that goal, Musk has openly admitted several times in the past that the end goal — electric cars for everyone — is more important than Tesla being the company to make that happen. Until that goal is reached however, we don’t see Musk going anywhere. Consequentially, we don’t see an acquisition happening until that point, either.
With electric cars far from mainstream, we think that particular event may take a while to happen.
Some skills translate: others take an age to learn
Making a car is easy. Making a good car is extremely hard. Turning that car into a sustainable, profit-making business endeavour from nothing is night-on impossible, and the history books are strewn with hundreds of would-be car companies who tried — and failed — to bring a vehicle to market.
In fact, before Tesla, the last U.S. car company who survived the transition from startup to mainstream brand was Chrysler. Every other car company, from Delorean to Fisker, has declared bankruptcy and faded from the history books as a consequence. Many of these companies were founded by auto-industry insiders, people who understood the automotive world. Yet they still failed to reach profitability.
Apple has none of this knowledge, and while an acquisition of Tesla by Apple would obviously come with a massive injection of auto-industry insiders into Apple’s ranks, it doesn’t equal success.
Our point? Just because Apple can make consumer electronics does not mean it can build a car. Even with Tim Cook — Apple’s self-proclaimed supply and manufacturing wizard, who famously helped Apple reduce the cost of its iPad through shrewd manufacturing deals — Apple would face a mammoth task to simply understand and assimilate all of the regulatory and procedural requirements each and every automaker has to manage day by day.
Need more proof? Take one look at the boards of every major automaker in the world today. Most, if not all major automotive executives started their careers in the automotive industry, working their way through the ranks to become board members. Very few have come to the automotive world from elsewhere. Even Tesla’s board and senior management staff have an extensive background in the automotive world, despite it being a young company.
Being into cars doesn’t make you a ‘car guy’
In his recent post at Business Insider, Jay Yarow argues that Apple’s board is already full of car guys. From Apple CoFounder Steve Jobs — who said he wanted to design an iCar before he died — through to Apple SVP of Internet Services Eddy Cue and Apple’s SVP of Marketing Phil Schiller, Apple has plenty of car-fans.
CoFounder Steve ‘Woz’ Wozniak even owns a Tesla Model S.
Yet being a car fan doesn’t make you a car guy like Bob Lutz or Carlos Ghosn. Loving the experience of driving and appreciating a good car design, or perhaps even indulging in the occasional bit of racing does not make you an auto-industry executive.
Years of blood, sweat and tears do. Years of automotive design cycles, endless testing, and hard-graft engineering.
Do you agree with our take on Apple and Tesla? Do you think we’re wrong? Or do you think there’s some other reason we’ve missed that explains why Tesla won’t be purchased by Apple any time soon.
Leave your thoughts in the Comments below.
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