Why Apple Needs To Buy (aka Save) Tesla.

Tesla’s Issues

I won’t bury the lede on this one; Tesla seems to be in trouble.

1. Manufacturing issues leading to only 260 of the projected 1500 Model 3s delivered. According to the Washington Post ‘the system “is designed as a very tightly integrated” fashion, according to Musk, meaning that when one element of that manufacturing process is broken, the ripple effects are profound.’ At the current rate of production (10k/year or even 50k/yr), Tesla would need 50 years to deliver on the 500k Model 3’s (and 10yrs at the high end) that have been pre-ordered. 50 years!

2. Tesla was expected to start delivering 20k batteries by Q4 2017. That’s not happening. Considering batteries, and their value across both the vehicle and utility industries, explain Tesla’s high valuation this is a problem.

3. Reports of employee firings at both Tesla and SolarCity (~1200). Claims that the firings at SolarCity were review related are being refuted. Some analysts project that, unless there is a huge cash infusion into the company, Tesla might go bankrupt.

All not great signs. But this is not the first time that a visionary, looking to disrupt the incumbents with a vastly superior product, fails just before he manages to truly change the game. 

The Tucker 48

Somewhere on South Cicero, the far southside of Chicago, there is the overwhelming smell of chocolate. This location is the only one where Tootsie Rolls are made in the world. Between 1946–1948 this same 475-acre plot housed the Tucker Corporation where the Tucker 48 was produced. The Tucker 48 was considered one of the most beautiful American cars at a time when all the other car manufacturers were stuck in their old ways (sound familiar). The Tucker 48 was more innovative than every other vehicle at the time. According to the Smithsonian

With its swooping lines, the car appeared almost as if it were moving, even when standing still. “It was like the Star Wars of that period,” says Jay Follis, historian for the Tucker Automobile Club of America. It wasn’t only the sleek shape that resonated: The car boasted innovations including a third, centered headlight, which swiveled to light the way around corners; fenders that pivoted defensively when the car turned; disc brakes; a pop-out windshield (designed to eject during a crash, protecting passengers); a rear engine; and a padded dashboard.

But Preston Tucker, the founder, raised $25M, unheard of for a car start-up at that time, by selling dealership rights for a car that did not exist and raising money through unconventional means. This raised the ire of the SEC and, even though Tucker and his team was acquitted, this broke the company. The Tucker Corporation produced just 51 versions of the Tucker 48. 51…

Apple meet Tesla

The Tesla story is eerily similar to the Tucker Corp. But it doesn’t have to end that way. An acquisition by Apple would benefit both companies. Truth be told, Apple needs a new product that’s not just purely a me-too overpriced phone masked with hype. The iPhone is the only product benefiting from Moore’s Law that seems to get more expensive even as the core technology gets cheaper!

So what does Apple get by acquiring Tesla?

1. Apple moves some of its $216Bn back to the US by buying Tesla. The company is (unsurprisingly) unwilling to lose 40% of the funds that have been accrued outside the country due to taxes that would be incurred from transferring them back to the US. 

2. According to Scott Galloway in ‘The Four’, Apple moved from being a tech company to a luxury brand a few years ago. This transition enabled (and enables) Apple to sell a ‘low-cost product at a high priced premium’. The hiring of Angela Ahrendts from Burberry further confirmed this transition. And that focus on luxury can be amplified by the acquisition of the only true luxury car brand for the auto electrification age.

3. A Tesla acquisition enables Apple to get into electric and autonomous vehicles. Tesla has already done all the early work Apple is just doing with Project Titan and would enable Apple catch up with Google/Waymo etc. Apple and Tesla are essentially selling the same product; a connected device with a battery. Apple has (currently) figured out how to manufacture these products better than anyone else. Taking advantage of the expertise that Apple has in supply chain management, manufacturing and design would relieve some of the pressure Tesla is under. And there are synergies to be gained from combining the battery expertise across both companies.

4. This is the big one for me; paying $75Bn, a 50% premium on the closing share price of $300, would surely catapult Apple into the Trillion dollar market cap number. (vain but perception shifting)

History rhymes

Preston Tucker tried to build another car after the Tucker 48 fiasco. But he does not long after the acquittals. Many of the ideas he had, and the approach to designing beautiful cars, seeped into the auto culture. To the benefit of the customers…

As much as we give the old style auto manufacturers grief for not being innovative, they’ve had a lot of time to figure out the financial and logistical requirements of getting customers the vehicles they want. For example; Daimler, Volkswagen, Ford and Daimler have already partnered with Ionity to build supercharging stations. The incumbents are sharing infrastructure to compete. And on the utility front, another industry where Tesla is competing, all that is missing is a willingness to adapt to the changing landscape. Tesla has shown the incumbents that customers desire beautiful utility products and that the technology is here.

My worry is that, like Preston Tucker, it would be a shame if Tesla showed the market what is possible but failed to reap the rewards of blazing a trail. Any way this ends, because we’ll know that electrification of the auto industry is inevitable, it will be to the benefit of you and me, the customer…

note: I do not own stock in either of these companies. Many thanks to Ken-Ichi Hino and Bimbo Okesanya for the conversations that fueled this post.

https://www.linkedin.com/pulse/why-tesla-needs-apple-upgrade-seyi-fabode/