Apple will NOT buy Tesla for $75 Billion in 18 months

Jason Calacanis is an accomplished VC (Venture Capital), angel investor, and startup guy.
He’s also a smart guy.

He recently wrote that, in his view, Apple will buy Tesla for $75B in 18 months.
I 100% disagree.
Let me explain.
(disclaimer: I own no AAPL or TSLA stocks, I don’t own a Tesla car, and I own two Macbooks). apple-icar

What’s the current status?
Some facts, so that we are all aligned.
Apple is worth more than $740 Billion. It sold about 170 million iPhones in 2014, among other things.

AAPL

Tesla is worth $25 Billion. It sold about 33,000 cars in 2014. No, that’s not a typo. It’s only 33,000.

TSLA

What about Tesla?
1) Tesla’s Elon Musk is great at generating free PR for his company (besides being a really smart guy). Everybody knows about Tesla cars, despite there are so few on the streets, mostly in California (and everybody here thinks there’s Teslas everywhere. Like the “Starbucks” bias that every Newyorker has). This helps him hire and retain great talent and make them work really really hard, and it helps with the stock price, although you might want to remember that stock prices are mostly driven by decisions taken by “big whales”, not by small fishes like us.

2) Many other companies are pursuing the dream of electric cars, not just Tesla. Tesla will not be alone in this race.

3) Electric cars are very simple. No gears.  No gas. No oil for the engine (but you still need lubrication for other parts). Easy.

4) The hard part is batteries. They are heavy, they take time to recharge, and most of all, they’re expensive.

5) There’s also no charging network (the equivalent of gas stations), and no one has solved this yet. Shai Agassi tried to solve this with Better Place, and he failed miserably. No one has figured out how to power millions of electric cars. It’s a huge problem.

6) Tesla’s plan to solve the battery problem is to build the Gigafactory, to supply high quality, low cost batteries to its Tesla cars, and possibly to sell it to other car manufacturers. If you think this is a novel idea, you’re wrong. Praise Elon’s great PR strategy, but there are already Petafactories (orders of magnitude greater than Elon’s Gigafactory, in terms of output) in Japan, China and Korea to produce batteries. They’re old style, of course, and I bet that you can improve many things.
Look at this graph. Three BILLION cells produced per year.

batteries

7) Tesla makes some money by selling electric car certificates in California. In short, just in California, car manufacturers have to sell a small percentage of electric cars in order to sell the other cars. Most of them don’t sell electric cars, but they can buy “certificates” from Tesla. This will not last forever. As an example, Fiat Chrysler Auto (FCA) equipped a Fiat 500 with batteries and an electric motor, and sells it to offset the sales of the gasoline-powered Fiat 500… And for each one it sells, it loses about 5,000$.

8) Tesla is a solid company, but nothing says that in the future they will be alone in this market. Actually, whenever battery technology will be mature enough, every car manufacturer will want to switch to electric-powered cars, because margins can be higher for them. Why should Apple buy Tesla, then? Jason made some interesting points, while some others are less compelling.
Take this one, for example: “Tesla is going to take the 5-inch thick battery from the Model S and plant it on people’s garage walls, according to reports, so that they have enough battery power to last a week. ”

tesla-car-chassis

Well, that battery might cost more than the entire house (because you would need several of Tesla model S’s batteries to run a house for a week). And for what purpose? So I can disconnect from the electric grid for a week, and then reconnect again when the battery has run out? Or to power it with expensive solar panels? I don’t think so.

He also makes several points related to how Apple can then push its apps into the car, and let people use these apps while a driverless Tesla drives them around. Why can’t Apple do this without buying Tesla? It would be a smart partnership, and it’s not unlikely to happen in my view. I think that living in Silicon Valley (like I do, by the way) might obfuscate your view of how other companies in other parts of the world operate or think.
I am not an expert in car manufacturers, but I certainly know the sophistication reached by R&D centers of big brands like Mercedes-Benz, BMW, Audi, many Japanese ones, or even Ferrari (in its own way). I had some opportunities to get in touch with these realities with my current and previous jobs. Enough to know that Tesla should not underestimate what other companies can do.

This is probably the only very solid point made by Jason: “Apple would need at least seven years to get a car on the road: three or four years to design it, followed by three to five years of building factories capable of any sort of modest capacity.” If Apple really wants to go after the car market, and speed up things, then I agree that acquiring Tesla might be the only viable option.

Will it happen?
I don’t know.
Jason’s hypothesis might be legit, but I don’t see any compelling reason for this to happen.
I don’t predict the future, therefore we’ll just need to wait and see.

By the way, I’m up for a bet with Jason, if he wants to make it. Add 18 months to Feb 14th, 2015, let’s say August 14th, 2016. If, by that date, Apple didn’t buy Tesla, I win. Otherwise, he wins. Jason, what do you say?

You can discuss this on Hacker News.

Feel also free to retweet this story here: http://ctt.ec/B7tIc

20 Comments

  1. Bolke · February 16, 2015 Reply

    tesla sells more cars overseas than in the us. Specifically the Netherlands and Norway due to their tax exemptions for electric cars. If you are a small business owner you can have a tesla at around 20k euro in Holland and close to no road taxes.

    So forget the us, Europe is much more environment and conscious and thus will drive sales fell electric (or other low emission) cars.

    But I do agree that I find it highly doubtful for Apple to buy tesla :-).

    • Collin · February 16, 2015 Reply

      €20,000 for a Tesla? What kind of tax credits does that require? Do you have any kind of proof of that cost? It’s around $22k, which is $40k off the base Tesla Model S.

      I smell shenanigans.

    • Stefan · February 16, 2015 Reply

      -> If you are a small business owner you can have a tesla at around 20k euro in Holland and close to no road taxes.

      I don’t think this is true, €60.000 is more like it.

    • Floris · February 17, 2015 Reply

      No you can’t get one for 20k in the Netherlands. I was interested in a Tesla and I would buy one instantly if it was 20k. I did my research and cheapest I could get one back then was around 60k

  2. Nicholas Chan · February 16, 2015 Reply

    You buy Tesla for the engineers.

  3. Kevin Joyce · February 16, 2015 Reply

    Many misconceptions here on the electric car side

    1) Electric cars with DC brushless motors and large cell batteries are easy but expensive.

    2) AC induction plus small cell high power and energy batteries are hard.

    3) OK, but Tesla released patents so they can be imitated.

    4) Are you aware of the Supercharger network? It gets Tesla drivers across the countries. Sure, it might take longer to “fill up” than gas but it exists and it works and is a minor compromise for many.

    5) The gigafactory is talking about producing 35 gigawatt hours of battery cells. That represents 3 billion cells per year. In other words they are doubling the global production in your cited chart.

  4. Curt Renz · February 16, 2015 Reply

    “5) There’s also no charging network (the equivalent of gas stations), and no one has solved this yet.”

    Unlike the case with gasoline, every home garage is a charging station. That’s where over 99% of the charging is done while the car owner is at home. Meanwhile, since the established automakers are not building a network of charging stations, little Tesla Motors is rapidly rolling out its network of Supercharger stations, and they are free: http://www.teslamotors.com/supercharger

    “2) Many other companies are pursuing the dream of electric cars, not just Tesla. Tesla will not be alone in this race.
    8) Tesla is a solid company, but nothing says that in the future they will be alone in this market. Actually, whenever battery technology will be mature enough, every car manufacturer will want to switch to electric-powered cars, because margins can be higher for them.”

    Tesla CEO Elon Musk has been encouraging other automakers to go electric. He has open sourced Tesla Motors patents. The idea is to speed up the worldwide conversion from internal combustion engines to electric motors. Tesla Motors would rather be a small frog in a big pond than a big frog in a small pond.

    “6) Tesla’s plan to solve the battery problem is to build the Gigafactory, to supply high quality, low cost batteries to its Tesla cars, and possibly to sell it to other car manufacturers. If you think this is a novel idea, you’re wrong. Praise Elon’s great PR strategy, but there are already Petafactories (orders of magnitude greater than Elon’s Gigafactory, in terms of output) in Japan, China and Korea to produce batteries. They’re old style, of course, and I bet that you can improve many things. Look at this graph. Three BILLION cells produced per year.”

    Let’s not confuse individual battery cells with battery packs for electric cars . There are 7,000 battery cells in a Model S battery pack. Three billion cells would be needed for less than 430, 000 Model S battery packs. The Tesla Motors factory in Fremont made 500,000 cars per year when it was owned by GM and Toyota. The Tesla battery Gigafactory is designed to make more battery cells than produced worldwide in 2013.

    ” Or to power it with expensive solar panels? I don’t think so.”

    Indeed, surplus solar power attained during the day would be stored in the battery for overnight use. Musk is the board chairman of SolarCity, which is powering homes and businesses, and converting Tesla Supercharger stations to solar power.

  5. alex · February 17, 2015 Reply

    I think the home battery has lots of applications. If there is a storm with power outages it could save your life. From a more everyday use you could use power from the battery during peak or expensive times and charge it when demand and cost are lower.

  6. no_one_special · February 17, 2015 Reply

    you just don’t want apple to buy tesla

  7. Krishna · February 17, 2015 Reply

    It just breaks Apple’s philosophy to buy Tesla. Apple creates products that are perfected, even if it means that they are leagues ahead of the game. Musk’s ideas are outlandish and just downright insane for Apple, and in no way Apple would support them to at least cover up the millions of dollars flying out of their company.

  8. Sid W. · February 17, 2015 Reply

    Interesting counter-argument, though the analysis gives short attention to some critical details (in fairness, so does Calacanis’s). Also it betrays a shallower understanding of the bigger picture by the author (again, so does Calacanis) — which happens to precisely the advantage of Elon Musk: his ability to see and to stay focused on a larger picture and to take the long view. This is ultimately why I don’t think Musk would be interested in being acquired by Apple: he’s playing a bigger, longer-term infrastructure-oriented game of the type that Apple has little interest and facility.

  9. adam · February 17, 2015 Reply

    i think if you win jason should give you his roadster.

  10. djhan · February 17, 2015 Reply

    BYD Company already does everything Musk is trying to do only they do it with ONE company. They have built the model home/community in Lancaster,Ca. They make solar panels,battery storage,solar streetlights,electric buses.LED’s and this year hope to bring an EV to the states. Also backed by Warren Buffet. If Apple was smart they would hook up with this complete green company.

  11. Alexander Batishchev · February 18, 2015 Reply

    Seattle is full of Tesla and Starbucks, too…

  12. MattM · February 18, 2015 Reply

    “And for what purpose? So I can disconnect from the electric grid for a week, and then reconnect again when the battery has run out?”

    Your lack of knowledge and imagination is showing.

    Electricity costs more during peak hours and less during off-peak. Imagine charging your house batteries at 8 cents per kilowatt hour at 2:00am and then using it to offset your peak energy use during the day at 35 cents per kilowatt hour.

    Imagine having a home-based power source that could run your fridge, computer, etc in the event of an earthquake or other natural disaster when services might not be restored for days.

    Imagine people with electric cars and solar systems. The solar charges the batteries during the day, allowing you to charge your car for free any time of day.

    Tesla will make boatloads of money off a home system, especially in California.

  13. Howard · February 19, 2015 Reply

    Apple is at $200B+/year revenue now so where to find next $100B+ market? Not going to be the watch and overall smartphone growth is slowing in addressable markets by Apple. They can always eat into Samsung like they have done recently with iPhone 6. But… where to find next new $100B+ market?

    US auto sales is between 10-18M/year EU is say 2/3 of this. Actual numbers depend on key factors like economy. Cars+SUV+Crossover is probably 75% of volume. Lets call this combined 15M addressable market by electric vehicles. Lets see what 3M/year vehicles generates in revenue…

    3M vehicles/year x $35k/vehicle = $105B/year

    So now we have an $100B/year opportunity for Apple. A nearby silicon valley company showed its possible to get into cars and got a beach head there. Future power train of vehicles WILL BE electric. Its just a matter of time and indexed to battery improvement rate. Will take awhile for Apple to get into cars on their own starting in 2014. Besides design and factory issues, there is government safety regulations and testing… all takes lots of time…

    Tesla is a good way to get into a huge market opportunity. As a reference, Toyota and VW sell 10M vehicles a year.

    BTW, Electric car growth will be indexed to the battery improvement. The most promising battery tech after Lithium Ion is Lithium Air. IBM has like 20 PhDs working on it in… you guessed it… Almaden research center in Silicon Valley. Probably about 10 years away 🙂

  14. Apple wants to build electric cars by 2020 | Automotive News · February 20, 2015 Reply

    […] up his claim that Apple will buy Tesla; however, many people on social media have since offered counter points. Even retired GM CEO Dan Akerson said Apple should steer clear of the business of making cars, […]

  15. simone · February 20, 2015 Reply

    Howard,
    thanks for the great comment.

    However, Lithium-Air batteries are not moving forward as people expected: http://qz.com/214969/two-big-labs-most-promising-next-generation-battery-electric-car/

  16. Apple wants to build electric cars by 2020 | Vehicles Reviews · February 20, 2015 Reply

    […] his explain that Apple will buy Tesla; however, many people on amicable media have given offering counter points. Even late GM CEO Dan Akerson pronounced Apple should drive transparent of a business of creation […]

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