On Tuesday, Elon Musk (1) stated that Tim Cook, Chief Executive Officer of Apple Inc, refused to take a meeting to acquire Tesla Inc. years ago.
In a tweet, Elon Musk stated that he had reached out to Apple during the ‘darkest days’ while developing his firm’s Model 3 to talk about a potential deal. He added that he had planned to discuss the possibility of selling Tesla to Apple for one-tenth of its present value, an approximate valuation of about 60 billion USD (2).
Notably, in 2017, Tesla had burned its cash to ramp up its mass-market Model 3 EV. Elon Musk told his employees and then at the firm’s Fremont, California, plant that it faced a period of ‘production hell’ for over six months. Few weeks after that statement, he tweeted about sleeping on the factory’s rooftop to solve its bottlenecks.
It happened around the same time when Apple had decided to shift from the development of a direct Tesla competitor to an underlying self-driving car system. In recent years, Apple has hired several ex-Tesla executives specializing in the drive train, self-driving technology, and car interior. It also acquired firms that specialize in self-driving car development. It indicates that the firm is once again considering to enter the market.
However, there has been no comment from Apple so far on Musk’s remarks. It is also worth highlighting that both Apple and Tesla’s shares have surged since early 2017. Tesla has gained over 1,400%, but it is still worth less than a third of Apple’s market capitalization.
According to this week’s report, while Apple’s shares have climbed, Tesla has slipped since Reuters reported that Apple is considering to produce a consumer driverless car in 2024.
This month, Bloomberg stated that Apple had shifted its car project’s leadership to John Ginnandrea (3) from Bob Mansfield, a former top engineer (4). It also indicates its self-driving technology and AI, artificial intelligence focus.
Elon Musk’s comment about Apple came a day after Tesla entered the benchmark S&P 500 Index, capping a year in which its shares has surged. Investors have started to bid up the shares as the firm has posted five consecutive profitable quarters.
The company’s travails continued in 2018 when Elon Musk tweeted that he had secured funding to take the firm private. Consequently, he agreed to pay 20 million USD to settle with the US Securities and Exchange Commission. However, he is still facing an investor lawsuit. Nevertheless, the shares of Tesla are up almost 800% since that tweet.
Challenges for Tesla
It is no secret that Tesla faced many difficulties while developing and producing its Model 3. It was a tough time for Tesla and CEO Elon Musk. He has talked regularly about how difficult it was. However, we were not aware that he had approached Apple’s Tim Cook to see if he might be interested in buying Tesla during its challenging time.
The news is quite shocking, especially when Tesla’s value is existing comfortably in the market. But the big kicker was that Apple didn’t even accept Musk’s request for a meeting, or at least that’s what Elon Musk said on Tweeter.
While Apple is renewing its effort to build its own electric and autonomous car with lithium-ion phosphate batteries, destined for a 2025 launch (5), Tesla is working to build its Austin Texas Cybertruck factory (6), its German Gigafactory, and ramping up Chinese production of its Model Y crossover. It is also developing its ‘Full Self-driving’ technology and new battery technologies, according to its Battery Day presentation in early 2020.
Apple getting into the vehicle market could also pose a threat to legacy auto companies such as Ford Motor Co. and General Motors Co; they will have a hard time competing if Apple starts throwing its weight around, as per Adam Jonas, an analyst at Morgan Stanley (7).
Meanwhile, Apple’s plan could mean a significant inflection for suppliers of electric, connected-car systems and autonomous in the speed and magnitude of huge investments, he added.
Tesla’s Stock in Bubble Territory
According to Vitali Kalesnik (8), partner and head of research at Research Affiliates, Europe, Tesla’s stock are very expensive compared to its performance; it is in bubble territory. He added that while it is a great company, its stock shows strong signs of being overpriced.
Notably, on the hot heels of reports suggesting that Apple is planning to produce its electric car with self-driving technology, Tesla’s share price dropped nearly 6.5% earlier this week. In Tuesday’s premarket, it was up by 0.5%, trading at 653.25 USD. Its present market value is 616 billion USD, which is more than the nine largest auto companies combined.
According to Kalenisk, Tesla’s stock price is too high, considering its sales, car production, and other fundamentals. He believes that when we are looking at such assumptions, we need to justify these valuations. In the case of Tesla, one would require very aggressive assumptions.
He means that its margins are largely on par with the rest of the sector, making its current valuation in the bubble territory.
With several key events in 2020, Tesla’s share price has increased by more than 650%. It started production at its California factory following a resultant pandemic shutdown and a legal battle with the state authorities. In July, the company posted its fourth straight quarter of profit, beating delivery estimates. Tesla also received a boost recently when it announced its first-ever stock split (9).
Tesla’s shares surged record high when it announced that it was debuting on the S&P 500, a stock market index that measures the performance of 500 large firms listed on the US stock exchange.
Notably, when a company is included in the S&P 500, investors have to purchase it at a very high price, and it could produce a bad consequence to the investors. While it was on its S&P debut day, Tesla’s stock tumbled on Monday from its record high in the last session.
As soon as Reuters reported that Apple is replanning to start producing an electric consumer car by 2024, anticipation for Tesla stock was mitigated.
Even though an Apple car could be several years away, other firms are already manufacturing significant numbers of EVs. But it seems like investors are not fully acknowledging that there is competition in the EV market.
Tesla has several advantages over its competitions, and many are also admitting it. They have a significantly larger-cap expanding. They are expanding very aggressively and putting multi-billion-dollar plans to venture into the market. Volkswagen is already producing while Toyota has serious plans. It also recently came out with advances in solid-state batteries, which can revolutionize the EV industry (10).
Despite these concerns, market experts don’t recommend shorting Tesla’s shares since its bull market can outlast capital for the shorts. Still, considering the volatility, it can also burn investors significantly.
Apple to Take Bite Out Of EV Market
According to reports, Apple Inc. is moving forward with its self-driving technology, including its breakthrough battery technology. The iPhone maker’s efforts in the automotive, known as Project Titan. It has been proceeding unevenly since 2014, when it first started to design its vehicle from scratch.
At one point, it even retracted its efforts on software and started reassessing its goals. An Apple veteran who previously worked at Tesla, Doug Field (11), oversaw the project in 2018, and in 2019, he laid off over 190 people from the team.
Since then, the tech giant has progressed enough. It now aims to build a consumer vehicle contrast to Alphabet Inc’s Waymo, a robot-taxi to carry passengers for a driverless ride-hailing service.
As per sources, Apple’s central strategy is its new battery design that could reduce the battery cost and increase its range. However, making a vehicle is a challenge even for Apple, which has deep pockets that makes hundreds of millions of electronic products every year from parts worldwide but has never made a car.
It is worth highlighting that Tesla took 17 years before it finally turned into a sustained profit-making vehicle. While it is no cellphone, but if there is one company on earth with the resources to do that, it is probably Apple.
While there is no clarity about who would assemble an Apple car, sources suggest that the company relies on a manufacturing partner to build its vehicles. There are also higher chances that Apple would reduce the scope of its efforts on an autonomous driving system to integrate it with a car made by a traditional auto manufacturer rather than the iPhone maker selling an Apple car.
People familiar with Apple’s plan stated that the company has decided to tap outside partners for system elements, including lidar sensors that help self-driving cars get a 3D view of the road. Apple car may feature several lidar sensors for scanning different distances. While Apple may derive some sensors from its internally developed lidar units since Apple’s iPhone 12 Pro and iPad Pro models released in 2020 has lidar sensors (12).
Apple is also planning to use a unique mono cell design for its car’s battery that bulks up the individual cells in the battery and frees up space inside the pack by removing pouches and models that hold its materials.
According to reports, Apple is examining chemistry for the battery called LFP, or lithium iron phosphate, which is less likely to overheat, making it safer than other types of lithium-ion batteries. People are considering its battery technology to the next level and comparing it to when we first saw the iPhone (13).
Apple’s Emergence As Tesla’s First True Competitor
With Apple aiming to venture into the transportation sector, the iPhone maker could emerge as Tesla’s first true competitor. Regardless of its approach, its ambition could result in meaningful revenue and pitch itself head-on with Elon Musk’s Tesla.
In 2014, when Project Titan reports came out, experts said that Apple had three avenues, first building an Apple car, building software and license it to other automakers, and acquiring Tesla. However, analysts had dismissed all Project Titan outcomes, noting that Apple Tesla marriage can’t happen since both firms have strong sentiments about design.
While we believe that the combination would have been powerful, it has unfortunately remained a fairy tale. The analysts suggest that Apple is more likely to invest in building a car in the next decade since it has invested in mobility for seven years, and the auto market is also at the edge of a transformation.
Apple’s wheelhouse has always been finding a big market where a competitor has already made progress. It enters there a few years later and revolutionizes it. Another factor driving the Cupertino-based company is the auto market’s size, worth more than 2 trillion USD. Notably, Apple currently has over 315 billion USD in revenue.
However, Apple still has several potential roadblocks ahead of its big automotive foray. It includes issues related to safety and negative publicity fatalities as experienced in the past by Tesla and Uber Technologies.
While it has deep pockets and access to all resources, building a self-driving EV also poses supply chain impediments. It might also be difficult for Apple to start producing large car volumes right out of the gate. Traditional auto firms have very complicated manufacturing networks that one can’t replicate overnight.
We have also heard several conflicting reports that Apple is not making a car but a self-driving technology to sell it to automotive companies. Reports also suggest that Apple was making a car, but the company had abandoned the idea. It is not interested in selling iCar but using the idea to develop tools for battery and AI technologies for its other products.
Such wild reports also indicate that the media at present does not know Apple’s plan. There is also a huge possibility that even Apple doesn’t know its plan but only exploring the market and deciding if it can turn it into a product (14). We think that Apple is interested in the technology, but we are unsure what the iPhone maker plans to do with it.
It doesn’t make sense to put that much work into something with no aim to build a car. Well, it’s Apple; it has always been interested in AI, and creating a self-driving car could be the ultimate AI project out there at the moment (15). Nevertheless, this stuff is harder than even the expectations of the world’s greatest experts. For instance, CEO Elon Musk had said in 2015 that Tesla would have complete autonomy by 2020, and it is still not there yet (16).
Moreover, previous experience with Apple tv tells us that only because the tech giant is working on something doesn’t mean that its product will see the day’s light (17).
The Apple-Tesla Tussle
With John Giannandrea, an artificial intelligence chief taking over Apple’s self-driving car unit, it indicates that Apple is focusing on system and software as its key ingredient. It was inevitable that Tesla’s biggest challenger would not be an automaker while Apple would make a perfect nemesis. Previously, Bob Mansfield, hardware engineering Vice President was leading the effort.
For years, there were speculations that Apple would join the EV race, with teams and development underway. However, previously, the program lacks focus with several job cuts and changes in directions. However, there is a change in the winds as there is a renewed hype that Apple car is ahead of its schedule, and its aggressive timeline is even taking its fans by surprise.
Like Hota Industrial Manufacturing, Taiwan (18), Apple’s automotive suppliers were asked to ramp up their production parts ahead of launch as early as possible, as reported in Taipei-based Economics Daily news. It is a peculiar time about the resurface of Apple Car rumors since it has a set plans for EVs for the better part of a decade.
Another development that went mostly unnoticed is that Foxconn Technology Group (19) is also getting into cars. It is a firm that not only assembles iPhones but also supplies its numerous less-significant components. It first announced its plan in January and unveiled its open-vehicle platform in October. According to Foxconn’s statement, it will start shipping its first EV development kit in April, which would allow any developer to build a car on top of its electrical system and barebones chassis.
So at present, we have news of Apple shifting its vehicle plans from a hardware chief to an AI leader while its primary manufacturing partner is launching a modular platform and its suppliers taking up an impending product launch. However, there is no information available with us if the Taiwanese company has tapped the deal to make cars for Apple.
Regardless, there seems to be a sync between the two firms on one key thing, indicating that a vehicle’s brand and production can and probably will split in this era. However, Elon Musk disagrees vehemently.
In 2015, Musk had told Handelsblatt that cars are very complex compared to smartwatches or phones. He added that one couldn’t go to a supplier such as Foxconn and ask them to build a car.
However, there is one thing Tim Cook is better than Elon Musk is delivering a high-quality and consistent product on-time. Several leaders in the market believe that the only thing that’s holding Tesla from growing into its 616 billion USD market is not EV demands but its inability to manufacture them.
Over two decades ago, Steve Jobs, the founder, recognized that Apple’s strength is not in manufacturing Macs, but it is in designing and marketing them. HP, Dell, Sony, and many others also came to the same conclusion. However, cars are different; they come with the familiar refrain, and one can’t outsource them. Yet, global leaders such as BMW have tapped the likes of Magna Steyr for their assembly.
Elon Musk fancies himself as the man who disrupted the automotive industry with electric vehicles and his direct sales business model. While Tesla’s investors seem to believe that it would warrant making Tesla the world’s ninth most valuable company, there are also speculations that the next innovator in auto would pass him as Musk clings to his fantasy that a car’s brand should also be its manufacturer (20).
However, it is in the foreseeable future to see if Tim Cook can prove him wrong.
