Why would Apple business development executives meet with Tesla Motors?

Tesla Model S

A few days ago rumors of Apple/Tesla meetings resurfaced, and conclusions were once again leapt to about a possible acquisition. It’s unfortunate that most people writing about the topic seems to have nothing but mergers and acquisitions (M&A) on the brain. I think there is absolutely no chance that happening and what's more — I think there are far more interesting possibilities to consider here.

As much as people want to see Apple enter new product categories, I don’t think it makes any sense for them to start making cars. None. But there is a huge area of potential common interest, and that’s batteries. I’m a big fan of Tesla, and I’m also a shareholder so I follow the company closely. If they are to even reach 1% market share in the global car market they probably need to obtain lithium ion battery supplies that represent something like 10x today’s world production. Tesla would like to create its own huge battery factories to accomplish this goal. Obviously the biggest current use of such battery technology is from mobile gadets, and Apple is a huge buyer of batteries. So just as Apple has become more vertically integrated on the hardware side of things with making its own processors, it’s entirely possible that it would want to get more involved with battery production.

That brings us to cash. Apple has gobs of cash. Tesla … they’ve got nowhere nearly enough money to build several gigantic battery factories. It makes complete sense to me that Apple would get involved with a smart and useful project such as growing the global supply of lithium ion cell production by an order of magnitude or more.

I don’t think investors are silly enough to actually believe Apple wants to (or plans to) buy Tesla. Shares of the electric car maker were up about 2% on Tuesday following the completely unfounded M&A rumours, and that’s a drop in the bucket considering the volatility of the stock on a normal day.

I do think investors are smart enough to look towards the future, because that's exactly where both Apple and Tesla are looking.

Chris Umiastowski

Chris was a sell side financial analyst covering the tech sector for over 10 years. He left the industry to enjoy a change in lifestyle as an entrepreneur, consultant, and technology writer.

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There are 22 comments. Add yours.

stale_bread says:

Oh my god. Just thinking about how scratched the back of that iPad must be sitting on the concrete makes me sick!

StuartV says:

Trendy products whose popularity defies critical analysis of their functionality and value proposition. A perfect match for each other!

Obsidian71 says:

Perhaps for Tesla but Apple as a company has been around for 36 years and has been successful for a majority. Whatever "critical analysis" the purports that speaks to the contrary is suspect at best and certainly not "critical"

StuartV says:

A critical analysis of the functionality and value to evaluate the demonstrated popularity would mean an objective analysis of their products, in comparison to other products that purport to meet the same consumer needs. An objective analysis would mean an analysis based on quantifiable factors - not subjective factors like "this one looks cooler" or "this one just seems simpler" or "this one just has a better feel to it".

And now that you make me think about it, I guess a critical analysis of the iPhone and iPad does not really defy their popularity. Those items were the first such devices in their respective categories. As such, of course they would be 100% popular, at first. Now that there are other products that significantly superior to each of those in functionality and in value proposition, Apple no longer has the majority of annual sales of new devices in either the smartphone or tablet market.

I revise my earlier statement to: Trendy products with relatively poor functionality and poor value proposition. A perfect match for each other!

You're a smart person, so I'm sure you implicitly understand that "relatively" in this case means relative to other products in the same category (i.e. cars, smartphones and tablets).

Obsidian71 says:

Value being 100% subjective is a very difficult thing to quantify. We are all entitled to our opinion. Thank you for offering yours.

StuartV says:

I'm not surprised to see that comment on this site. It could be the Apple fan boi mantra. But, value is absolutely NOT 100% subjective. Does a fish have value as a phone? No. Is that a subjective assessment? No. 100% objective, in fact.

dalyapp says:

Hmmm...I think products that have been successful for several years makes them more than trendy. More control over battery technology would certainly help Apple.

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ZeroLeonheart says:

I wonder the benefit, if any, to have Apple design a mobile-centric OS for Tesla Cars as a selling point. Or maybe like the above poster said, to improve battery tech for iDevices going forward. The only certainty is that if Apple buys Tesla, the stock is going to explode, implode, re-explode, and then meltdown into a glorious shower of coins.

richard451 says:

An outright acquisition would be a disaster for Cook as someone as glorious as Musk would quickly be CEO. Just ask Amelio how it went when he acquired a living legend.

Michael Ellis Day says:

I see the obvious trolls are off to a strong start in the comments. Ignoring that...

My guess had been that the executive meeting had to do with an even greater integration of Siri and turn-by-turn directions into Tesla cars, maybe even an Apple-designed UI for controlling all aspects of Tesla operation. In the long run that would be something Apple would want to offer to all auto manufacturers, but Tesla might be a candidate to do something really bold and attention-getting here where other makers would want to hold back and be cautious. The battery angle never even occurred to me... but now that it's been mentioned, be darned if it doesn't sound extremely plausible.

Vanti says:

I was thinking something along these lines when I heard of the purported meetings between apple and Tesla. I follow tesla news as best I can because I truly believe that electric cars will be the way of the future and they seem to be making the greatest impact in that field. However when I heard of apple meeting with them I was thinking also about the battery technology that they have under their belt. In order for tesla to continue to succeed they are going to need better batteries. Not bigger batteries but one that can maintain the same size if not less and have a higher capacity as well as longevity of the cells. I have no doubt that tesla has some form of R&D department that is looking into this and apple could only stand to benefit if they were the first or sole benefactor of teslas research.

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Carioca32 says:

As far as I know, battery production depend on rare earth elements which are mainly mined in China and are already scarce and at the peak of their production, so this theory makes no sense at all if the bottleneck in battery production isn't larger factories but a greater availability of raw materials.

Chris Umiastowski says:

What can I possibly say other than what you supposedly know is dead wrong. There is no near term constraint on rare earths.

Chris Umiastowski says:

Poorly sourced articles with no real information. Lacking on any detail related to what Tesla uses in its batteries. It would be worth doing some homework on the mass of which metals, as a ratio of total battery mass, is required. You may be surprised.

Carioca32 says:

Strong words from a financial analyst which offered no sources or real information. In fact most articles about the shortage are better sourced and informed than the ones that simply state world reserves to argue that there is no shortage.

But what I think that makes even less sense in your theory is that neither Tesla nor Apple are battery developers or specialists, they both need batteries for their products and buy those from external suppliers, so why exactly Apple would need to team with another battery consumer, which will compete for scarce resources to get better bateries, and not just go to the source and talk to Panasonic, which makes Tesla batteries in the first place.

heyjohnnybravo says:

First and third article don't have valid links.

Second article is so uninformative it makes me question if any of it is even true. Which rare metals? Statistics? No scientists or research cited?

Please, if you're going to try and undermine the blogger please put in some effort.

Posted from my TARDIS!

Chris Umiastowski says:

Musk has already pretty much said Panasonic is a partner in the factory too. Thank you for pointing out the obvious. We should get details on things this week.

Becjr says:

Apple is interested in Nikola Tesla's electromagnetic secrets for an iPhone the self charges and adheres itself to the electric charges in our skin so we'll stop dropping iPhones.

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adamroutier says:

Would they not just be sorting out ios in the car?

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nrs1706 says:

I fully agree about the battery technology each would be looking for.

Both these industries (electric cars and mobiles) have common basic requirements - battery!

And learning that Tesla uses Li-ion batteries in a series of combinations to power the car, it will definitely have to raise the bar in terms of production of batteries (which I think Panasonic currently does for them).

Apple being cash rich, and sharing a common requirement in an enormous margin, would really want to get a solution.

I was wondering in terms of software until I read this and I now feel batteries are rightly the bigger concern and requirement for both Apple and Tesla.

I would not want to stop to think in terms of production here. I think the vision is more wide. I think they would target the battery technology as a whole. With the current constraints in battery technology, I would like Apple and Tesla to together surprise me as always with what they have in mind in the future of battery technology.