Before we dive into the details, I probably deserve some scolding for this. Earlier in my article about what Companies Apple could possibly buy with its about $206 billion lying around, I brought up Tesla — or at least that what was public sentiments pointed at. However, things change and in my case — it took a surprisingly short time to. Including Tesla Automobile in Apple’s ‘speculative’ shopping list though still considered plausible by some analyst is to me ‘now’ a flawed decision. If it helps to stop the scolding, I showed some level of doubt in my initial post on the issue, but then that’s that. Ok, enough of the peace offerings — so why the sudden change of mind?
Firstly, while there are still ‘ clear positives ‘ why Apple’s possible buy out of Tesla will benefit Apple enormously, there are clearly more critical underlying reasons why Apple isn’t going to take the hit on Tesla. Tesla currently boost a market cap of over $30 billion, though that wouldn’t be ‘impossible’ for Apple to ditch out, but that’s still very much cash even in Apple standards. Apple also hasn’t really got an impressive track record with multimillion dollar acquisitions. The highest amount the company, currently the most valuable listed company on earth have ever paid for a merger/acquisitions was for Dr.dre’s Beats Electronic — a deal that saw Apple, perharps reluctantly let $3 billion change hands.
The auto industry is huge, so so huge and so is the auto market. Nonetheless, even in the world’s largest auto market — almighty China — markets are already saturated. Too many big players like General Motors, Toyota, Ford, Mercedes, Hyundai among others throw in their full weight on the market, making being a successful new player become as hard a task as getting oil prices back to $120 a barrel. Analyst might argue that Tesla isn’t a new player and is rooted in the system, but being acquired by Apple will probably alter the companies operating dynamics. Tesla is still pretty much operating like a startup company. If you curious about Tesla, do well to read our Quick facts about Tesla The company Spends billions of dollars on Research and Development with anticipation of ‘ massive future’ returns. Also, coupled with the generally low profit margin in the automobile Industry, it makes little sense for Apple to spend billions of dollars to acquire Tesla stock, and then billions more on R&D and to develop these electric cars only to grab a marginal share of the industry — and at a low margin. Electric cars are yet to be profitable tech products, and with Apple having close to no experience in cars, there is no reason to think it has figured out some recipe for success that others like General Motors can not.
Apple have sometimes been ok with sharing its successes with others in recent memory as seen with its partnering with credit card companies and banks for Apple Pay, with recording labels for Apple Music, and over 1.5 million developers to put their apps on its App Store. However, historically the Cupertino based tech giant has always wanted to own all parts of its end user or consumer experience. Apple has always sort ways to develop an airtight ecosystem around its products, this approach has driven the popular notion that Cupertino will want to own both the proposed Apple car and all of the components within. Unlike with its iPhones, iPads, iPods and other hardware, adopting the own it all strategy wouldn’t work well with cars and most importantly would go down well with Tesla’s Elon Musk.
Now let’s take a trip down memory lane —apple has proven over and over again to the technology world (and of course the rest of us) that it doesn’t buy things that it should clearly be buying. Not purchasing other well-known and established companies like Tesla is so core to Apple’s business strategy ‘ that it must have a whole department devoted to non-mergers and un- acquisitions ‘.
— Back in 2003, The LA Times reported that Apple is in talks to buy Universal Music, one of the world’s ‘big five’ record labels in a deal that was speculated to worth between 5 to 6 billion dollars from its troubled parent Vivendi. Welcome to 2016, Apple obviously hasn’t still found its pen to make the signing a go.
— Pixar a company with huge success in computer Animations, and Walt Disney went their separate ways back in 2004. Coincidentally, this was a time when Apple’s late CEO Steve Jobs was considering entering the music and entertainment sector, it was Virtually a done deal for Apple to snap up the firm, but Alas it was too logical a thing to do for Apple. The deal never saw the light of the day.
— In 2005, everyone or at least everyone who understood the sector thought Apple was going to buy out TiVo a successful digital video recorder maker. The company with a market cap of $300 million saw it shares skyrocket 17% in few days due to the rumors of a ‘logically sound’ apple buy out, but hei remember Apple doesn’t do logical stuffs, so the deal didn’t happen.
— With a previous failed attempt by Steve Jobs to buy Palms inc, a struggling PDA marker back in the 90’s, it was onces again logical to assume Apple was snapping up the company when it had hit rock bottom back in 2006. Lots of analyst made lots of predictions, quite bold prdiction — but I guess we know how that one was going to end — Apple didn’t blink an eyelid.
Let’s skip to Ten years later, its 2016 — Weird as it may sound, it just sounds too logical for Apple to buy Tesla, it just makes too much sense, and currently Apple doesn’t really do things that makes much sense or sound logical to observers. And there is this important question lurking around — is Apple really building a car? Well, whatever answer you choose to give to that question, its highly likely that Apple isn’t getting its hands on Tesla, not today, not tomorrow, not next year and definitely not anytime soon.