Why Apple (or Google) buying Tesla is a Bad Idea

It’s a tech industry trope at this point: Apple should buy Tesla as it’s move into the auto space.

And with Google’s recent reorganization, there’s been some musings that the company should buy Tesla to beef up its hardware chops and have a key vehicle for its autonomous driving software.

On the face of it, I see why people make sure suggestions. I’m a Tesla investor myself, and right from it’s early days with the Roadster, Tesla has been called the Apple of cars for it’s high design, technology and innovation standards. It’s one of those companies that are insanely great at what they do, their Model S won Motor Trend’s Car of the Year with the most highest ratings of any car to ever win it, they’re all electric, all tech, all Silicon-Valley, all American, all of that.

But there are certain realities about their business that makes it a bad idea for any pure tech company, almost all of which revolve around the fact that it is a CAR company.

The first: material costs. Any car company depends a lot on commodity markets. Tesla builds its cars with aluminum which, despite it’s recent slide in price, is still about three times more expensive than steel, costs more to engineer and generally is harder to work with. Tesla can’t switch to steel however, because then it would suffer range declines, which would make them less appealing. Besides that, the market for metals is always swinging, and there’s no real predicting what input costs will be from year to year (although derivatives help alleviate some of this concern). Does Apple or Google really want to weld their fortunes to a market that fickle?

Aside this, there’s the reality of manufacturing and inventory. Apple has a bit more manufacturing props than Google does, but it’s a huge leap from carving out a beautiful phone, to building cars. And as Apple has almost completely outsourced manufacturing (other than prototypes), they’d have to go back to running their own factory, warehousing inventory, working out distribution and all the other expenses that go into being a manufacturer of such a heavy duty product.

These realities are already showing up in Tesla, which is racking up a lot of losses and burning through loads of cash in order to stay in production long enough to hit scale and mass production. Even then, Tesla’s goal, when they eventually turn profitable is to achieve 25% margins. Apple has had 40% margins for years, and it would be silly to absorb a money losing concern just because they can.

Finally, I don’t see the synergies, outside of branding hype that acquiring Tesla would add to Apple. Entering the car industry? It’s not profitable enough. Having their software drive the autonomous cars of the future? Google has proven you don’t need to be a car company to do that. Apple’s software already provides entertainment and functionality for many cars. They really don’t need to make the entire car.

If you believe strongly that they should, I’d like to know why. Perhaps, there is an angle I’m missing.


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