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Friday, November 14, 2014

How To Destroy Tesla Motors

The suits are at it again. That is, they're trying to tear Tesla Motors down. Their latest bit of imbecility is to suggest that Apple Computer could buy Tesla Motors and cut production costs like they did with the iPhone.

That not only can't happen (Elon Musk would never allow it), but it would be a disaster for both Apple and Tesla investors.

Green Cars Don't Suck has the right take on this ridiculous notion in If Apple Buys Tesla, It Could Ruin Elon Musk’s Vision:

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 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.
It would be a lot smarter if Apple created their own electric car company and tried to compete with Tesla. Maybe they will?