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Why An Apple, Tesla Partnership Makes Sense

Wed, 02/19/2014 - 1:51pm
The Association For Manufacturing Technology

Over the weekend, news broke that Apple's head of M&A, Adrian Perica, met with Tesla CEO Elon Musk last spring. While it's unknown if a partnership was ever decided on, such a partnership between the two companies makes sense on so many levels. 

Both Apple and Tesla are interested in many of the same things: making gorgeous, aesthetically pleasing products that just work. In fact, the two companies have exchanged employees, including George Blankenship. Though Blankenship is no longer at Tesla, he used the inspiration from helping build the Apple Store experience to help build the same for Tesla.

Silicon Valley has always rewarded great design, both inside and out. The two companies are among the most exemplary examples of this, be it the iPhone, iPad, or the Model S. Every detail is thought of, and it all works seamlessly with each other.

However, that's where many of the similarities end. Tesla does not incorporate Apple maps into its dashboard navigation system, which essentially looks like a giant iPad. It uses Google Maps. It also does not use iTunes Radio, but rather it uses Pandora or Internet radio.

Though Apple is generally thought of being as a luxury electronics brand, it offers quite a few appealing items for the mid-level consumer. Lower-end iPods (iPod nano, and some iPod Touch versions) are seen as expanding the Apple halo. The same goes for the Mac mini, the lower-end iPad mini, as well as refurbished products that Apple sells on its website.

Tesla, however, does not target mid-level consumers. The Model S starts at $63,750, and runs up to around $110,000, depending on what features and options you have. These costs don't include a $7,500 tax credit and other credits for electric vehicles depending upon where you live, but the Model S is a luxury car through and through.

Tesla is working to drive the cost of its cars down, via either leasing, or just continuing to work on reducing the battery cost, but a sharply reduced battery is still a ways away.

Here's four reasons why an Apple-Tesla partnership makes sense

Battery Initiatives

On Tesla's third-quarter earnings call, Elon Musk noted that Tesla is exploring different ways to go about building a gigafactory for batteries, be it with a partner or else, but that something must be built. "So a way to think of this is like a factory is the machine that works for machine and that itself has a version, just like you have a version of a product," Musk said on the call. "It's like a version of the factory. So we are trying to figure out what's the right way to do version one at this gigafactory and we want to be thoughtful about it and it is going to be a really giant facility, like say we are doing that something that's comparable to all lithium-ion production in the world in one factory."

Two of the largest costs for both Apple and Tesla are the lithium-ion batteries that go into iDevices, as well as the Model S. Obviously, they are different types of batteries, but nonetheless, they are still lithium-ion batteries. A partnership between the two companies, either building the plant, or using both companies' engineers to help drive down the cost, and increase efficiency for the batteries makes sense.

Design talks

With both companies obsessed with design and engineering, it would make sense that partnering between the two companies could only yield better results.

Apple's lead designer, Jony Ive, is one of the most well regarded design enthusiasts in the world. In fact, when Steve Jobs was still CEO of Apple, he set the company up so that no one could tell Ives what to do. He had, and still has that much power, as he continues to work on products like the iPhone, iPad, and the oft-rumored iWatch.

Musk is just as much a design aficionado as those at Apple, and has hired some of Apple's best employees to work on what Tesla is building next. Instead of hiring Apple's employees away, perhaps the two companies could collaborate on designing various products.

Admittedly, this one is a little far out there, with Apple being extremely secretive about what it's working on. It's fun to speculate though, even if this ultimately doesn't happen.

iCar?

It's abundantly clear that cars are the next connected device. Being at CES, there were more cars showing off info-tainment centers that can do more than you'd imagine. Brands such as Chevy, BMW and Toyota showed off their latest entries into an increasingly mobile world. However, it doesn't just stop at the car itself, it's also about the operating system.

Google has already formed an alliance with a variety of car manufacturers, to bring Android to various cars. At Apple's Worldwide Developer Conference, Apple unveiled iOS for the car, which makes use of a car's existing operating system to give it a more "Apple-like" experience.

Tesla's Model S already runs on a Linux operating system, an open operating system, the potential for iOS in the car is there. It could have an Apple user interface, and make use of Apple Maps, Siri, music control, and iMessage.

It's unlikely that Apple ever makes a car itself, but integrating iOS into a Model S, or future Tesla vehicle (Model X?) makes sense.

Apple's Enormous Cash Hoard

Apple had $158.8 billion in cash and cash equivalents at the end of its fiscal first-quarter. Apple used $14 billion of its cash set aside for its buyback program to aggressively repurchase stock, according to CEO Tim Cook in the past few weeks, but that leaves a good chunk of Apple's domestic cash for other initiatives, including company stakes.

While Cook has said in the past Apple is not averse to large acquisitions and has even looked at some big companies before, Apple is notoriously stingy on price. With Tesla's market cap over $24 billion, that would be an extraordinarily large purchase.

However, if equity markets fall sharply, or Tesla missteps because of a lack of funds or something similar, perhaps Apple steps in to make an investment in Tesla, to provide it with the funds it needs, or to capture the eventual rebound in Tesla shares.

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