There was a lot of talk about Apple and the car business as last week came to a close before the long weekend that largely resulted from sightings of what appeared to be a self-driving car mule, which was traced back to Apple. Apple is a technology company, and there will be a market for self-driving retro-fit kits, and a requirement that future iPods, iPads, and iPhones work with the next generation of cars so just because there is a mule doesn’t necessarily mean Apple is building a car. However, looking at how aggressively Apple and Tesla have been stealing employees from each other there could actually be fire under this smoke and Saturday Jason Calacanis, a guy who is legendary in the technology market, dropped his prediction that Tesla and Apple would merge.
Let’s talk about why Apple might be thinking of cars and which path would be more attractive to them.
Why Apple Cars?
You only need to go into a Tesla store to get why Apple might be interested in cars, and conversely why Tesla might be interested in consumer electronics. The Tesla store is clearly designed after the Apple store in terms of store placement, how they showcase their products, and the affluence of the customers who come in.
The Apple store lacks really high end products to sell like cars, and the Tesla store lacks relatively low cost items that could be sold to folks who aren’t ready to buy cars. Strangely I think Tesla would likely benefit more from including many of the Apple products in their stores than Apple would in having Tesla’s because it is relatively easy to buy an Apple product or accessory on a whim but pretty tough to justify buying a $60K+ car just because it caught your eye.
If the Tesla store had both, the car would add to Apple’s already strong store draw (get people into the stores) and the added traffic would sell more Apple products and accessories. Conversely on a new iPad or iPhone sales wave the extra traffic would bring in people that are thinking about cars and more of them would likely conclude that an Apple car would be the vehicle they should end up with.
Tesla + Apple
That covers part of the why but the other part is that the two firms also have a couple more things that might make them ideal partners. They have no product overlap so a merger between the firms would be additive. In other words if they didn’t break either firm the synergy from both together would additive and justify the tie up. In addition, Apple and Tesla both enjoy the highest customer satisfaction in their respective segments and there is a very high correlation between Apple and Tesla customers.
Tesla has hit a wall in terms of increasing their stores because they failed to realize that in much of the country local politicians own dealerships and are passing laws to outlaw Tesla’s store front sales process. Apple has a lot more leverage and were they to threaten to pull products out of cities that blocked Tesla the backlash against the related politicians could be rather pronounced.
From a personal standpoint, allowing politicians to block what is likely one of the greatest assets this nation has created so far this century in order to protect their personal income from selling foreign cars is despicable. But clearly Apple would be a huge addition to Tesla’s battle for fair treatment.
Finally Elon Musk is more like Steve Jobs than Tim Cook is and the Steve Jobs + Tim Cook partnership was one of the most powerful that has ever existed. The two men as peers likely could do amazing things neither could do alone and that is likely the strongest argument for combining the two firms.
The other path is for Apple to follow Tesla and create their own cars sold like Tesla does through Apple stores. Apple’s approach would likely be very different given the Van they are using as a prototype and the result could be a nice looking rolling entertainment center tied tightly to self-driving technology. While the auto industry slowly drifts toward self-driving cars to ease buyers into this new market Apple could jump in with both feet and just as Tesla has the best electric car because the went electric first, Apple could have the best self-driving car for the same reason.
Though I think they’d have the same store front issue Tesla does and would likely partner with Tesla to solve the dealership problem regardless as I can’t picture Apple setting up any type of store system that they didn’t own and control outright.
Wrapping Up: Long Odds
While I think the odds of an Apple car pure play are long largely because of the regulatory hurdles the firm would have to jump through wouldn’t make it work it, I do think Apple and Tesla are close enough that partnering or using an acquisition strategy to get into this market would make sense. Tim Cook has been hinting of an unexpected product expansion and cars would be far more attractive than white goods would initially (another area they could expand, white goods are home appliances).
Who knows, in 10 years you could be plugging your iPhone into your iCar and while Apple will then take you for a ride, it likely will be a good thing.
President and Principal Analyst, Enderle Group
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