It’s understandable if you missed the headlines that Apple may buy Tesla. That piece of speculative news, like most news about Tesla, has been overshadowed by the PR storm that surrounds the CEO’s behavior rather than based on the technology behind the product.
Here’s some background information for those who missed it. Simultaneously with the CEO’s investigation for violation SEC law 10b-5, rumors began to circulate that Apple may buy Tesla. Some of these rumors were started by Ross Gerber, a Tesla investor, while others sourced the VC firm Loup Ventures, and the gossip is still being echoed a month later. Essentially, the prediction is that if Tesla fails to become profitable, “Apple gains the upper hand and becomes the most likely investor or buyer.”
From a technical standpoint, the theory of an Apple acquisition is nearly impossible. The authors oversimplify (or don’t even address) where Apple is in the development stack, where autonomous vehicles (AV) are in the maturation cycle, and the ongoing failure points in AV technology that Tesla is not able to solve.
I understand there are a lot of Elon fans rooting for him, and perhaps some satisfied Tesla owners who will read this, but stock investors are in a different class. They can’t afford to follow a fad because returns are at stake. With that said, here are three blatant reasons as to why Apple won’t touch Tesla, and why I won’t either. (There is information on shorting Tesla below).
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1. Apple Makes The World’s Best Software– Not Vehicles
Apple will not buy Tesla for the very fact that Apple doesn’t need to manufacture a car in order to capture the autonomous vehicle (AV) market. Apple is a computer and software company and AVs will require powerful computing systems. The cars released today with connectivity features have the computing power of 20 personal computers and feature over 100 million lines of programming code. Next decade’s semi-autonomous cars will have 300 million lines of code, and the distant future of fully autonomous will have 1 billion lines of code. Apple will not limit itself to the 200,000 cars that Tesla sells annually, (or even 320,000 if the current quarter is to be sustained), while at the time assuming the overhead, cyclical sales and incumbent competition of an auto manufacturing when it can capture a piece of the 82 million vehicles sold globally through the core business of supplying software. Keep in mind, Tesla is one among many who have achieved Level 2 autonomy with no indication they can safely release beyond Level 2. This makes the small amount of production Tesla actually does even less impressive from an acquisition standpoint (more on this below).
2. Apple Vs. Google: Nothing New Here Folks
The cars that Apple and Google have on the market are used to test the operating system and nothing more. These vehicles are not necessarily trying to compete with GM, Ford, Volkswagen or Audi. That’s why Apple and Google are seeking partnerships with them – they’re not competing with them. For instance, Google has run tests with Lexus/Toyota, and Jaguar Land Rover, and Apple has partnered with Volkswagon. Even still, we are at least a decadeaway from having full autonomous vehicles on the road due to technical mishaps, security vulnerabilities and government regulations. Of these, security will be the biggest hurdle to overcome as you can’t test for every possible scenario. This is because the electrical components in a car (known as the electronic control units, or ECUs) are connected via an internal network. The peripheral ECU introduces vulnerabilities such as the vehicle’s infotainment center, which means WiFi or Bluetooth can grant access to core systems such as the brakes and transmission.
AVs closest comparable for security today is the smartphone, with roving mobile sensors and signals, and iOS is challenging to hack. Can GM and other Detroit manufacturers duplicate the level of secure, computing power which Apple has perfected over the last 40 years with a closed ecosystem and the last 10 years with roving mobile signals? It’s not likely Detroit will compete with Cupertino on the machine learning required for 300 million lines of code or more, combined with full-system security, and it’ll take only one car hack before this is realized. (GM’s On Star was hacked in 2015).
This is true in the reverse, as well. Cupertino and Mountain View don’t have the talent recruits or experience that Detroit and Munich have in car manufacturing. Tesla most certainly doesn’t as the CEO is a mobile payments entrepreneur from Paypal (yes, he led a team that launched rockets — but there are no competitors here – except NASA which only spends money – therefore this is irrelevant for what Tesla faces).
