Blogs -Why Apple Will Never Buy Tesla: Autonomous Vehicles 101

Why Apple Will Never Buy Tesla: Autonomous Vehicles 101


October 09, 2018

author

Beth Kindig

Lead Tech Analyst

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).

My newsletter subscribers get this information first. Sign up here.

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).

3. Baby Steps: Connected Car, then Semi-Autonomous, then Fully-Autonomous

As Tim Cook said, “[Autonomous Systems] are probably one of the most difficult AI projects to work on.” There are six levels to autonomous vehicles as published by SAE International. The cars released today are primarily “connected cars” featuring driver assistance (level 1) or partial automation (level 2). Tesla’s Autopilot is a Level 2 system.

What will it take to get to a Level 3? Level 3, also known as conditional automation, is hands-off and eyes-off, but still requires a human. The first to market (and only vehicle to reach the public market as of yet) is the Audi A8 featuring Traffic Jam Pilot which continues to see delays in the United States. This is why it may be at least a decade before we see level 4, high automation, or level 5, full automation. (This is despite Elon Musk tweeting that Tesla will release full automation by 2019 – but at this point, it’s safe to say we should not put your money behind these tweets).

Gartner, one of the most trusted sources for predicting technology development cycles, has placed autonomous vehicles at more than 10 years out on their most recent hype cycle graph. This hype cycle graph predicts the maturation phases for new technologies and is hauntingly accurate in predicting the ebb and flow of tech and startup fads. Remember the wearables crash? Yes, Apple Watch survived but many did not – including Google Glass despite its backing. How about Virtual Reality – especially fan favorite Oculus? As you can see in the chart below, we have just exited the peak of inflated expectations and are on the way towards the trough of disillusionment. Short sellers of Tesla this year and last year may have been basing their calls on the CEO’s behavior but we are now about to enter major technology road blocks and consolidation that unbiased analysts predict will put even the highest performing AV companies to the test – with many low performing AV companies will not survive (see where Tesla is rated below). The current shorts are not wrong, they are simply too early in the maturation process for AVs and have had a bumpy ride because of this.

Graph

4. Would you Bet On a Horse in Nineteenth Place?

In a recent report released in Q1 2018 by Navigant Research, automated driving systems were rated on 10 criteria: go-to market strategy, partners, production strategy, technology, sales, marketing and distribution, product capability, product quality and reliability, product portfolio, and staying power. Of the nineteen companies that Navigant objectively analyzes, Tesla came in last place at number nineteen.

There is a “cost and complexity” once you take a “human driver out of the control loop,” as Navigant states, and it is my belief that the partnerships which are forming between software companies and auto manufacturers will continue to outrank Tesla in product capability, reliability and security (something Navigant did not report on) – not to mention the basics of production cycles and manufacturing vehicles at scale.

Here are the top 10 from the Navigant leaderboard:

Top 10 Vendors:

  1. GM
  2. Waymo
  3. Daimler-Bosch
  4.  Ford
  5.  Volkswagen Group
  6. BMW-Intel-FCA
  7.  Aptiv
  8.  Renault-Nissan Alliance
  9. Volvo-Autoliv-Ericsson-Zenuity
  10. PSA

Conclusion:

Apple has many opportunities to enter the connected car and semi-autonomous vehicle market, and the best card to play will be the through the OS in the level 1-2 category similar to Google’s recent announcement that the Android OS and Google Assistant will be featured across the Renault-Nissan-Mitsubishi Alliance. Taking these baby steps now is a much smarter move for Apple than acquiring a horse that is in nineteenth place with the race heating up to reliably and safely reach Level 3 and Level 4 autonomy. In this regard, there is nothing to here to acquire.

Although there is no doubt that Waymo is ahead of Apple (and everyone, really) in the race towards automation, if Gartner and many other unbiased sources are correct, Apple has time to develop a driving system in-house (or perhaps acquire a machine learning automation startup) as we are at least 10 years from full automation.

Beth.Technology Prediction: Telsa shorts were right but their timing was off. We are in a Level 2 AV bubble, and it will burst as Level 3 and Level 4 experiences growing pains (lots of cash has poured in with too high of expectations on when AV will start to turn a profit). Tesla, a luxury electric car company, will struggle greatly in the competitive hurricane for reliable and safe automation. Therefore, I’m considering a short on Tesla in 2019 or 2020, which I plan to time with the AV bubble bursting.

Gains of up to 403% from our Free Newsletter.

Here are sample stock gains from the I/O Fund’s newsletter --- produced weekly and all for free!

+344% on Nvidia

+403% on Bitcoin

+218% on Roku

*as of March 15, 2022

Our newsletter provides an edge in the world’s most valuable industry – technology. Due to the enormous gains from this particular industry, we think it’s essential that every stock investor have a credible source who specializes in tech. Subscribe for Free Weekly Analysis on the Best Tech Stocks.

If you are a more serious investor, we have a premium service that offers lower entries and real-time trade alerts. Sample returns on the premium site include 324% on Zoom, 601% on Nvidia, 445% on Bitcoin, and 4-digits on an alt-coin. The I/O Fund is audited annually to prove it’s one of the best performing Funds on the market with returns that beat Wall Street funds. 

beth

More To Explore

Newsletter

Where the Market is Headed Next

Where the Market is Headed Next

When the market was selling tech last year, the I/O Fund was buying AI leaders. For example, from September 2021 through January of 2023, we initiated 9 buy alerts for NVDA below $210. The last two al

June 08, 2023
https://images.prismic.io/bethtechnology/edb6f4db-e193-45b5-83f3-7524f57e66f7_Apple+Bets+On+The+Emerging+Markets+Growth+Story.jpg?auto=compress,format

Apple Bets On The Emerging Markets Growth Story

The smartphone market continues to be hit hard in q1, with prices down 20% and shipments down 13%, according to Canalys. Despite double digit decline across the industry, Apple delivered marginal grow

June 05, 2023
Nvidia Will "Still" Surpass Apple's Valuation

Nvidia Will “Still” Surpass Apple’s Valuation

My coverage on Nvidia as an AI leader began in 2018 (yes, really – five years ago). Since then, I’ve covered the AI microtrend for this specific stock 27 times on my research site, which is the equiva

May 29, 2023
FAAMG Stocks Trading At Precarious Valuations

FAAMG Stocks Trading At Precarious Valuations

The mega-cap stocks that are known as FAAMG reported earnings recently. These names are driving the market higher, especially Microsoft and Apple. In fact, the percentage of Microsoft and Apple’s comb

May 15, 2023
Apple PC Screen

Apple’s Stock In Focus: More Profitable Than Banks

Investors looking for the “next big thing” will point toward companies like Stripe, Sofi or Square as the leading fintech stocks. Meanwhile, the next big thing to disrupt the financial sector may be s

May 04, 2023
Netflix Remote Control

This Stock Price For Netflix Is A “Buy” For 2023

In April of 2022, Netflix surprised the markets by reporting its first subscriber loss in nearly 10 years. The stock tumbled 35% the following day, as investors panicked. Famed hedge fund manager, Bil

May 03, 2023
Where the I/O Fund Holds Cash When Banks Keeps Failing

Where the I/O Fund Holds Cash When Banks Keeps Failing

Amidst the growing skepticism in our banking sector, we thought it would be helpful to introduce an alternative way to both protect and diversify one’s assets. The information below discusses a method

April 20, 2023
Tesla Building

Tesla Stock: What You Need To Know About Q1 Earnings

Two months ago, we wrote that after realizing gains of 31%, it was time to take a time out on Tesla at the $208.31 price when our firm stated: “Right now, our technical analysis is at odds with our fu

April 16, 2023
Bitcoin Vs Banks: Here's Where the Price Goes Next

Bitcoin Vs Banks: Here's Where the Price Goes Next

The recent decoupling of Bitcoin from equities, we believe, is the start of a new uptrend that appears to be inversely correlated to the financial sector. The financial media would have us believe tha

April 05, 2023
Official Press Release: I/O Fund's Cumulative Returns Double the Nasdaq Following a Tough 2022

Official Press Release: I/O Fund’s Cumulative Returns Double the Nasdaq Following a Tough 2022

Actively managed portfolio and research site announces its largest cumulative lead over institutional all-tech portfolios. The I/O Fund defies a challenging market, outperforming peers and providing i

March 30, 2023
newsletter

Sign up for Analysis on
the Best Tech Stocks

https://bethtechnology.cdn.prismic.io/bethtechnology/e0a8f1ff-95b9-432c-a819-369b491ce051_Logo_Final_Transparent_IOFUND.svg
The I/O Fund specializes in tech growth stocks and offers in-depth research for Premium Members. Investors get access to a transparent portfolio of 30 positions, a private forum, webinars, and real-time trade notifications. Sign up for Premium.

We are on social networks


Copyright © 2010 - 2023
Get Free Weekly Analysis on the Best Tech Stocks