No, Apple Should Not Buy Tesla

Kevork Djansezian/Getty Images

He’s not for sale.

My colleague Jay Yarow thinks that Apple should buy Tesla. 

He makes a brilliant case; you can read the whole thing here. However, he’s completely wrong. 

It’s a provocative, scintillating idea: Apple buying Tesla would create a New Economy Dream team, unifying the most admired company in the world with the one that actually wants to change that world.

Not incidentally, Apple buying Tesla would bring about a synthesis of Silicon Valley and the Tesla’s game-changing vision for mobility that many people have been yearning for. 

To Jay’s credit, he puts this zany idea in a correctly zany context: It’s so zany that he’s the only one calling for it. 

I can’t overstate this: Zany ideas are what move the world forward. At the level of pure awesomeness, it makes perfect sense for the company that Steve Jobs built (but not by himself of course) and that Elon Musk built (also not by himself) to be joined. My pulse races just thinking about it.

But then my cool head prevails and I settle down. 

I have to thank Jay for the thrills.

But then I have to tackle his argument, which hinges on two points (maybe three).

DON’T DO IT, APPLE!

First, the idea that Tesla needs to better manage its production process. Here’s Jay:

Indeed, Tim Cook is regarded as a supply chain genius. This is where Apple has innovated since Steve Jobs stepped down as CEO and Cook stepped up. If you look at the numbers, Cook’s innovation has enabled Apple to create ridiculous profit margins, for its industry.

Bravo, Tim Cook!

Now he’s even managed to supervise the creation of a new Apple product that I think will open a whole new vista for the company, in real luxury products, as opposed to luxury-adjacent products, like the iPhone — the Apple Watch is going to be big in the luxury world.

But the problem with Jay’s argument here is that manufacturing a car is orders of magnitude more complex than manufacturing a consumer electronics gadget that’s designed to be sold for less than a few thousands bucks and destined to be thrown out or recycled in a few years. The effective life of an iPhone is — what? — three or four years, max? The effective life of a $100,000 Tesla Model S is at least a decade and really more like two or three decades. 

Teslas are built to last. iPhones are built not to.

I don’t think Tim Cook, adept as he may be at dealing with touchscreens and processors in the Asian supply chain, could breeze in and streamline the production of a car that needs to be very fast, very safe, uses all manner of never-before-seen drivetrain and power technologies, and is currently assembled by huge robots and human beings in California.

Tesla Motors

Built by robots.

It’s not even an apples-to-oranges comparison. It’s more like comparing an apple to an elephant.

The second point that Jay makes to support his argument is that Apple is full of guys who dig cars and want to reinvent them — guys on the Apple board, guys who design Apple’s products (Jony Ive, Marc Newson), guys who run the business. These guys love hot cars: Ferraris, Aston Martins, Porsches, Bentleys. They want to design and build awesome cars that blow your mind!

Ferrari

What’s not to like?

I can’t tell you how many people like this who the auto industry has chewed up and spit out over the past 100 years. Heck, the whole idea of creating in Tesla a brand-new shiny car company with revolutionary ideals nearly ended in tears for Musk, back in 2008. Everyone who wants to reinvent the industry comes at it from the point of view of a teenager who had a Ferrari or Porsche poster on his (almost always his) bedroom wall.

THE WORLD’S GREATEST BUDGET FOUR-DOOR?

But the reality of the business is that while Ferrari, for example, makes wonderful cars and also tons of money, it’s a miniscule part of the global market. Just as Apple wants to sell millions and millions of iPhones and iPads, carmakers want to sell millions and millions of cars. And not hot cars, but boring cars: mass-market sedans, workhorse pickup trucks, and versatile SUVs.

After setting a tone for his brand with the the exhilarating, high-performance Model S sedan, Musk can now say mission accomplished and move on to developing the mass-market Model 3, which he hopes to produce in the hundred of thousands.

I doubt that Cook and Ive and all the Apple guys with their Porsches and Ferraris want to grow up just so they can buy a company whose overarching goal is to create the electric Toyota Corolla.

But let’s give Jay the benefit of the doubt and assume that a consumer electronics supply chain guru can transfer his talent to the auto industry, and that Cook & Co. would be okay with building the finest $30,000 four-door sedan ever seen by human eyes on planet Earth.

High Gear Media

Not a Ferrari.

MONEY MONEY MONEY…

What difference, then, would Apple’s billions of cash on the balance sheet make for Tesla?

Well, if Tesla proceeds according to Musk’s plan and builds a $5 billion batter factory in Nevada — and then perhaps more “Gigafactories” in other states — and also ramps up production of the Model S, brings the Model X SUV to market next year, and develops the Model 3 on schedule…

… then Tesla will be getting close to being “real” car company, instead of what it is now: A very interesting company producing one very expensive car. By pushing hard to get the Gigafactory deal done, Musk has demonstrated that this is what he sees as Tesla’s destiny. Teslas, Teslas, everywhere.

But few enterprises in human experience are as good at taking cash and making it go away than car companies. At full-tilt, using state-of-the-art “lean” production methods refined over decades, a highly skilled workforce, and selling their product to people who are happy to go into debt for years to sit in traffic for hours — car companies burn billions per quarter, face the constant threat of cyclical downturns when people just drive their old cars and don’t upgrade to new ones, and generate moderate profits with limited prospects for significant future growth. 

What person in his right mind would want to get into this business?

Ford Motor Company

This is really expensive to do.

Now you can see why the Elon Musks of the world don’t come along very often. Tesla is still alive, but most of its competition, at least in the electric-car startup world, has fallen away. So if Apple did want to buy a car company, I’ll concede that the choice would be obvious — because there’s really only one car company to buy, excluding the numerous existing players encumbered by having been car companies since cars shared the road with horses. 

So while Jay is probably right that Apple can find better uses for its $155 billion cash hoard than stock buybacks, if I were Cook and I decided to buy Tesla, I could just as easily take a substantial portion of that $155 billion, put it in a Ferrari parked at Apple HQ, and set it on fire. I could then at least say that I had the courage to destroy a Ferrari in the course of obliterating Apple cash.

To be honest, I don’t even think Musk would consider this a good use for Apple’s money.

THE ELON FACTOR

Finally, there’s the matter of Elon Musk himself. As we learned at his media hootenanny last month for the Model D, Musk isn’t just Iron Man — he’s Iron Man plus Steve Jobs.

But really, he’s better than Jobs, who only got to walk around with nifty little glass-and-metal devices and talk about how nifty they were.

Getty Images/Justin Sullivan

It’s a phone.

For his part, Musk brought out a giant orange robot and commanded it to sling around a thousand-pound car chassis. Then he gave people dragstrip joyrides in the actual vehicle. 

Then he drove home and probably switched over to being the CEO of his other company, SpaceX, and worked all night on designs for a rocket big enough to send people to Mars.

Kevork Djansezian/Getty Images

It’s a giant robot holding a car.

When Steve Jobs left, we did need another Steve Jobs. But we got someone who’s aiming higher. We got Musk.

Tim Cook is fantastic, but I really don’t see Musk going to work for Tim Cook. Musk is now playing for a level of importance in the human race that far transcends Jobs’ very meaningful and important contribution, and whatever advice Cook can offer to improve Tesla’s manufacturing processes.

Tesla is ultimately a solution to global warming. SpaceX is supposed to make us “multiplanetary,” because you never know…

Musk is in it for the species.

It’s necessary to understand this about him. He doesn’t care about money, except as a means to an end. His companies aren’t companies in the traditional sense — they’re solutions to enormous problems, solutions that take advantage of the power that entrepreneurs now wield to gather funding for their dreams. His two main companies — Tesla and SpaceX — are doing the kind of astounding things that capture the imagination.

SpaceX

Next stop: Moon.

Smartphones and social networks are super. But they don’t do o-60 in 3 seconds with nothing coming out of the tailpipe, and they don’t want to go back to the Moon.

Additionally, if Cook wants visionary advice, I think he can just call Musk up and ask him what to do. Frankly, I think Musk would consider it something of a distraction.

GET TESLA WHILE THE GETTING IS GOOD

What about another point that Jay makes — that Apple will inevitably build a car in 20 years and should buy Tesla while Tesla is small and cheap so that it isn’t necessary to start from scratch?

That would be extremely risky. Tesla is operating in our existing world of getting around, which still involves cars and drivers and roads. Musk’s plan for the next few decades is about improving that situation. 

Google, meanwhile, is building the actual car of the future, which is small and driverless and something that Apple’s car lovers can appreciate at an intellectual level but would very much not like to drive. Or be driven in. It’s actually more of a node in a futuristic mobility system that treats your physical location as something to be overcome with very complex maps and extremely powerful artificial intelligence. 

Google

The Google Car is the shape of things to come.

It’s pretty much the opposite of what Tesla wants to do, although Tesla will likely be incorporating more and more “autonomous” driving technologies into its cars in coming years. 

Apple buys Tesla now to avoid having to buy Tesla later. But then later arrives and and Apple discovers that it bought the wrong idea.

I love the incredibly boldness of what Jay proposes. I just think it would be a very bad idea for both Apple and Tesla. 

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