Few businesses have managed to become as culturally relevant as Apple has in the past decade, and having pioneered and conquered the smartphone space, the tech giant is looking for new places to invest. One repeated suggestion among stock and technology analysts is that Apple should buy Tesla Motors, and such a move might end Tesla Motors as we know it.
This suggestion was made yet again by Business Insider writer Jay Yarow, who demonstrates his ignorance of auto manufacturing within the first few paragraphs of his piece. The crux of his arguement is is that because Apple can manufacture millions of iPhones are a (relatively) low price, then they could do the same thing for Tesla Motors, which is experiencing something of a production bottleneck.
Forget for a moment that Apple outsources most of the manufacturing of its products to China’s Foxconn, which has had to put suicide safety nets up so its workers won’t kill themselves. Building a phone and building a car are two *very* different things, and there are more regulations related to taillight placement and dimensions than Yarow can even imagine. Apple also works a tremendous amount of profit margin into each of its iPhones, with an estimated 49% to 58% gross margin on each phone it sells. That’s more than twice the profit margin Tesla makes on its top-end Model S sedans; if Apple had set the pricing of the Model S, it would have started at $100,000 instead of $70,000. Imagine what that would do for sales.
How does Apple do it? Primarily buying underpaying its workforce, as the people building iPhones make less than $300 a month. Apple has also been accused of profiting from child labor, something I can’t ever recall associating with any part of the auto industry. Meanwhile, Tesla has the highest revenue-per-employee in the industry, pays some of the highest wages and best benefits, and doesn’t pertain to the cult of secrecy and scare tactics that has evolved at Apple.
To be sure, a Tesla-Apple technology alliance could be of great benefit to both companies, though I would argue with Yarows assertion that Tesla’s software needs that much work (nothing is perfect, and Apple has had plenty of iOs problems of its own). Apple CarPlay is positioning itself as the infotainment solution for certain luxury automakers, though Google and Microsoft are making a go at it as well. There’s little doubt that Apple wants to get into the automotive technology world, and buying Tesla would be an easy way to take a big step into an all-new market. But a company like Apple may not be able to leave well-enough alone, and that could undermine the powerful but delicate momentum electric cars (and especially Tesla) are building.
Tesla is more than a money-making machine; Musk has stated the ultimate goal is to advance the adoption of electric vehicles by all automakers. To succeed in the way Elon Musk envisions, as a company that shares its patents with the world and encourages the competition to build even better electric vehicles, Tesla must remain independent of a profit-driven monolith like Apple. The iPhone maker could literally buy Tesla five times over at its current $30 billion valuation, but it would expect a hefty return for its investment. Can you imagine Apple delaying the iPhone 6 three times? Me neither, and the desire for profit hasn’t stopped Apple from launching ultimately flawed products in the past, for which they ultimately had to settle out of court.
Meanwhile, Musk has said in his most recent quarterly report that his company will forgo short term gains in favor of long term profitability, even if it means delaying the Model X again. That’s not something a lot of companies, even outside of the automotive world, are willing to do, and Tesla has succeeded because of how different Musk has made it. I have my doubts that Apple would keep that culture of openness and product perfection intact, even though a recent teardown of the Model S revealed more similarity to smartphones than conventional cars. So I’m not sure what, besides its massive cash reserves and marketing expertise, Apple could offer Tesla.
Then again, Apple is still a hip, cool company, and people see their products as a status symbol as well as a communication device. Perhaps some of their marketing knowledge could even speed up the sale and adoption of electric vehicles, making plug-in cars as popular and commonplace as the iPhone in relatively short order. The two companies have already met, though just what came out of that conversation remains a mystery, and Tesla has managed to snag a couple of former Apple higher-ups for its ranks as well. If Apple can do for electric cars what it did for smartphones, the world as we know it will be a much better place.
That’s a mighty big “IF” though. What do you think? Would Apple buying Tesla help accelerate electric vehicle adoption, or would the electric automaker become bogged down by a profit-driven mega corporation until its just another car company?