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Is Tesla the next Apple?

We have debated quite a few times parallels between those two companies. I tried to lay down my thoughts about that topic as an article at Seeking Alpha (an investor oriented site). I touch to technical aspects of the Model S and to Tesla's strategy as I see it. I hope this will start a nice discussion here or on SA comment thread.
http://seekingalpha.com/article/287904-potential-10x-stock-idea-why-i-be...

Thank in advance for your comments.

Lets see if I can post here....

I actually see Telsa more like Virgin Atlantic. They are coming into a highly established industry with a new way of thinking, looking, selling and acting with the goal of challenging an establishment and winning market share. In the end, however different Tesla may seem or look, they are still making cars. They have already made EVs seem more reasonable and attainable, and are making the case for the better value and service / technology innovations while not being "budget;" which is where I would have put JetBlue in the analogy. Apple has seldom actually been first to market with an idea, they just market better and have a stronger branding machine than most, if not all, of their competitors or comparators.

I haven't fleshed my thoughts out too much more on this, but my gut tells me that the Apple retail model may be a guide for Tesla's stores, but because their business model is something else entirely. After all, this is a very different type of product and industry (and price point even at the lowest levels). Apple's innovations are more in the branding of their product and their corporate culture, than in the actual product itself. Tesla's innovation is more about challenging paradigms that have long existed and breaking in not as a low cost alternative or a green alternative, but as a forward-looking and innovative company with a product capable of beating the traditional leaders at their own game; it is Virgin going from NY to London!

Most companies, large and small, claim they are forward looking / innovative / smart / pick a positive sounding business buzz word. IBM, Google, GE, Siemens, Ford, Chevy, HP even Walmart talk about their innovation and thinking in developing their products or services. Investors love it and consumers buy it. There needs to be more to a company than a brand identity; it lives in their products. Surely, any company would love to have the passion of the Apple brand evangelists behind them. However, we're talking about a totally different buying cycle and price point. As price and longevity goes up, so to does the burden on the product. If the iPad2 is a little off, that's fine, there will be an iPad3 coming out soon. If a $65k car is a little dodgy the company will go the way of the dodo in no time.

Mike, you're my hero.

Mike, I appreciate your thoughts. But I dare to contradict you about Apple.

If you look at the iPhone (and the iPad) and do not see anything fundamentally different from the smartphones of 2006/2007, when the BlackBerry was the king of the hill, you are completely outside this business. Since the iPhone, Apple broke down established players like RIMM, Nokia, Motorola, Sony-Ericsson and LG. A company cannot get bigger than Exxon on hot air alone (marketing and evangelists).

If the iPad2 was not good enough, they could lose grip of this market that will replace the venerable PC during the following 5 years. It's the difference between iPod vs. Zune and Macintosh vs. Windows. This is the bet of the century in consumer electronics / personal computing.

I see Tesla as Tesla, not some lame Apple that was brink of the bankrupt few years ago, and because of the short-sightness can be that again very soon. Apples weakness is that it doesn't share. Everything in Apple gizmos have to be manufactured and designed by Apple. When someone makes a succesful clone of the iPad etc. with a little bit less money (which is easy, when you are talking about Apple gizmos) they are again facing bankrupt. Sure, they are up now, but that wont last, not with that attitude.

Tesla shares. Tesla welcomes everyone to EV industry, they practically force everyone to follow. They make deals with others. Their technology and designs will be used in other manufactures cars. They also make their own cars. With that strategy they pretty much can't fail if they survive few first years, and to me it looks like that few years are already gone, they can't fail anymore.

@Nicu, I do agree that the iPhone was a fundamental shift, and only Apple could have pulled it off when they did. RIM tried with the poorly named, and even worse to use, Storm. The iPad isn't as amazing and new for me. Once again, Apple used their marketing machine to make a big splash, but tablet-like PCs have been used for years. Panasonic's ToughBook had tablet functionality years ago. What Apple does best is take a decent idea, which has been poorly executed, and execute it in a customer friendly way with great hype, while drawing on their loyal customer base (I have an iPhone, iPad, and still use my iPod... and I want a Macbook air; turns out I'm one of the loyalists, I just didn't know I was until just now).

What Tesla is doing is more about being a challenger brand against an established industry; that is the crux of my argument that they are more VA than Apple.

I'll take it from another angle, and where I think my original gut feeling came from:

The CEOs (e.g. personality of the company):
If you look at the CEOs of each company, I would say Elon Musk is far more a Richard Branson than Steve Jobs. Jobs is my hero; He is king of the nerds (apologies to Bill Gates, but Steve wins). Branson is the type of guy I wanted to grow up to be in while in high school. He is larger than life in personality and risk taking. Even his hair is exciting (ok, maybe I’m just jealous of how much there is still)! It was Elon Musk that inspired Robert Downey / Tony Spark from the Iron Man movies. Steve Jobs doesn’t inspire comic book heroes, and I don't think he would want to. Branson and Musk are they guys trying to literally slip the surly bonds of Earth, and make money doing it!

The marketplace (I still think this holds, and was the other element of my gut response):
The biggest thing I see is the market maturity when the companies came into being. Apple changed the world with the first consumer accessible PC, the Mac. There simply isn't a correlation with an EV versus ICE. Automotive transportation is highly established and in many places highly cultural. The transatlantic routes in the '80s were similarly established and cultural (my mother made us wear ties when we would fly to England from New York! On British Airways). VA came along and offered almost the same service paradigm (transatlantic flights) but with a new model (well, probably an old model; sexy and extravagant, but in a modern way). Apple laughs at paradigms and then creates their own. They seldom have a competitor with any clout when they hit the market with a new product. Tesla might have been in that place with the Roadster, but I would assert the Roadster was more proof of concept, and the Model S is the foundation of what the company will become.

Nissan, Chevy, and just about everyone else now has, or has in plan, an EV for the next model year or the one after (or this model year!). Tesla is staging an insurrection. If they didn't exist there would be no real consumer gap. If the Mac didn't hit the market at that time there would have been nothing to fill that product void for quite some time. People didn't know things existed like a PC with a hard drive. People know, need and use cars every day.

All that said, you're probably right that Tesla is best placed to become an Apple (sans comic bad-guy-like headquarters I would hope). There are lots of other larger and better funded companies who are able to take larger risks financially and have more established engineering, manufacturing and QA processes, all vying for the same spot. Still, I'm betting on Tesla, but it is hard to argue that a Nissan is less able to absorb a failed launch of the Leaf than Tesla would be if the Model S fails.

I think the Model S will be transformational. I was waiting for WhiteStar to come out for what seemed like years. I was on a business trip in Asia when the Model S was announced and had to wait to land in Hong Kong to get to an airport lounge with WiFi to make my order. I bought the stock on the day of the IPO. I'd move to the West Coast and work for them if they had a need for a guy like me.

Oh, on the point that a company can't win on hot air alone, I sort of agree and sort of don’t. Apple is a lot of hot air, but they back it up with decent to great products. I'm a professional marketer (work for one of the largest marketing / ad agencies running a global B2B tech client), and I have seen over and over where the sizzle far outstrips the steak. I like to use the example of Volvo. Everyone thinks they are the safest brand (mind you, they are VERY safe, but not safest). My wife basically demanded one when we had kids. If you look at the actual safety ratings and compare costs and features, you're better off in a Kia. Still, people want a Volvo. Brands matter. Brand identity matters. The products can kill a great brand, and can also revitalize it, but there isn't a one-to-one correlation there. Great companies make terrible things that just fizzle out of the minds of consumers and borderline to terrible companies make mediocre products, but time it right and continue to grow almost inexplicably (I'd argue RIM for close to five years, until recently when the weight of iPhone and Droid have crushed them, and don’t get me started on Lotus Notes!).

I really enjoyed your article and think your points are valid and well thought out. I'm just challenging a few points both for the fun of it and because it was where my gut went when I read your post. Now I have to get some work done... Truly, this was fun. Sorry if I ranted and rambled a little. I'm passionate if not a little disorganized in my thoughts.

Thanks, great reply. I really enjoy it and learnt from.

It seems you may be even more passionate than me about both companies. I wonder if you are more bullish than me on their future in the market (more than 90% of my portfolio is in calls of AAPL and TSLA - I used to own shares but the bear market in May made me sell those and go all in calls).

Interesting thread. May I suggest a book that goes much deeper?

http://www.amazon.com/Innovators-Dilemma-Revolutionary-Business-Essentia...

It's called "The Innovator's Dilemna" by Clayton Christensen. To summarize the entire book in one soundbite, "Look out from below!". Using the computer hard drive industry like a geneticist studies
fruitflies, this book shows how successive generations of well run, well capitalized companies all failed. They fail not because of mismanagement or for lack of capital. THey fail because management often can NOT justify the resources to focus on a market that currently doesn't exist, returns that won't happen for years, and a technology that may not yet be ready.

This book was written in the late nineties I believe, and it's final chapter examines the electric car industry. I think Elon must have read it!

In short I'd say yes for patent/IP and manufacturing reasons weighing more heavily then design:

1. Exclusivity contracts - Apple can sell hardware that no other OEM (like Samsung or HTC or HP or Amazon) can. RE: Retina display or A5 controller. This makes their other IP and Patents shine. I just assume Tesla will do this with their 17" panel

2. Patents - Derivation of great UI and usability comes from great patents to keep others out of the way. Tesla is creating a large amount of IP that I'm sure they will use to keep others from copying their work.

3. Cooperation agreements - Or jointly held patents where several companies can benefit from more "common" technology implementation methods. Think Toyota and Tesla. Or Daimler and Tesla.

Disco;
I think you have the wrong competition model in mind when analysing Tesla. Elon seems to put little stock in exclusivity or market capture, though initially there is some of that. By the time anything is in production, Tesla is already moving on to the maximum "push" of new stuff they can manage reliably for the models in design or production.

This is possible right now because the market is very un-saturated. It will absorb an unlimited amount of high-quality new product (EVs). Mediocre product like Leaf and Volt and Fisker, not so much. They're going to have to scratch and claw just for survival.

I am saying, I guess, that the 'S' will be such a superior game-changing offering that selling all they can produce will be standard for years to come.

"It will absorb an unlimited amount of high-quality new product"
"selling all they can produce will be standard for years to come"

very, very well said; people will not sleep in tents outside Tesla stores, but will be on this forum trying to find ways to be patient !

I would like to thank all Tesla customers (and employees) for making this one of the great stories of the new century! I have a double interest (at least), clean tech advance and TSLA going up, which will fund my Model S sport ;)

Well, I hope you're right Nicu. TSLA stock has been doing the same general rollercoaster ride as the rest of the market so far. I hope that will change after the October 1st event.

@Nicu - what are your thoughts on Steve Jobs resigning and assuming the role of chairman?

The man is unique. But he transmitted his modus operandi to all levels of the company.

The stock will be volatile for a while (probably down tomorrow). Medium term I think this will lift the permanent menace of Jobs' health issues so the stock could start to appreciate according to the economical performance (in 9 months the company grew more than 50% but the stock is up only 10%-15%).

For a few years out, it will be interesting to see if they can continue to disrupt new markets, no idea / guess about that.

@Brian H...all good points, and I believe it will be game changing due to the price point they are hitting and hopefully superior interior dimensions, but that is exactly what the iPad did and is currently doing, as well as what the iPod and iPhone did.

Let's take tablets currently. There is nothing that can touch the iPad right now. Windows tablets are nearly double the price and weight while being slow and battery hungry. And any Android (Honeycomb) tablet out there is still years behind the tech inside the iPad (ask any dev or hardware engineer). Everything from UI design, interconnection of the bus to the CPU to the App store is all under IP that Apple does not license or is very careful about what they do license. Search on Apple sues Samsung for patent infringement to see this play out.

Also, try not to view the Model S just in terms that it is an EV; it's so much more than that. Every bit of that car will be patented and protected so that others can't easily copy it. They will need to reverse engineer around the patents and that takes time. We need to see the entire process that will eventually bring people to make the purchase. This is why I'm so interested to see their manufacturing floor. This process that Tesla is designing is all wrapped up in IP that they will eventually reap the rewards of just like Jobs has done with Apple.

If you don't think that IP is where the money is at just look at the recent spending spree Microsoft, Apple and Google are on. Microsoft spent 8.5B on Skype for IP and Google is buying Motorola Mobile for 1/3 of it's current cash (13B). Apple and Microsoft are buying, together, several thousand patents around Android just to keep Google from having a monopoly on their own OS.

This is why Apple does not licence their IP and a large part of why it does not have competition currently in the tablet market.

BTW, if anyone is interested in further analysis of the iPhone or the iPad markets or simply on the Apple stock, I have 3 more articles on that on Seeking Alpha, besides the comparison with Tesla.

I will try not to repeat that here, not to annoy you guys, please do not retaliate for now.

I see one major difference between Apple and Tesla: Tesla is willing to let other people play with their toys, and Apple isn't.

Think about it, Tesla has been providing their battery & drivetrains to other companies, like Diamala's SMART cars, whereas I can't think of any time when Apple has allowed anyone to even "look under the hood" of any of their products. I mean, they even have their own computer certification levels for their hardware (I was a PC tech before).

Apple is about being ahead of everyone else, or standing alone.

Tesla is all about starting up a new market, even if it's not with their own product, and encourages other manufacturers to do something similar.

Yes, Apple has evolved over a 35 year period and changed many times during that time.

Tesla is in a very cash intensive industry and they could never jump start it by themselves. The day they will be able to manufacture a few millions of cars a year, and everybody else will copy their tech and designs, they will probably choose to do everything by themselves. Until then, they need to help the market grow, stay innovative and profitable and position themselves for the future.

Apple escaped bankruptcy by a $100 million loan from Bill Gates, looking to prop up someone he could point to as a competitor
during the DOJ anti trust period. Jobs then ditched his association with Java and Sun and IBM and played the game Microsoft wanted him to play. Jobs was without ethics or guts. In terms of innovation in the field of computers/software, the concept of the Java programming language is the only thing I can point to in the history of the technology that can truly be called brilliant - a concept that has the ability to free practically all from proprietary enslavement by OS's, etc. Neither Tesla nor Apple have ever done anything that can be characterized as brilliant. Apple's endeavors have provided no new technology or concept - everything that has succeeded at Apple was a refinement of someone's else's product. The same can be said for Tesla - the company has provided excellent design for EVs and designed an attractive product, but there is nothing here that one could characterize as brilliant or particularly innovative. And why would there be? Tesla set out to make a great electric car, not create some heretofore unknown type of personal transportation apparatus. If you look at the history of technology post-Edison, you will probably select IBM as champion innovator. And by giving away the Windows OS and microprocessor, the author of two of the worst business decisions ever made.
People often confuse innovation with commercial success, as has been enjoyed by Apple. But they are seldom one and the same. Commercial success depends upon a variety of factors, including one's competitors. Mostly Apple has succeeded by making products no one else took very seriously, thereby avoiding competition. And it would be impossible to think of their three main success stories as
in any way distinctly different : each is more or less simply an elaboration of the previous device, which further demonstrates the basic lack of innovative capability at the Apple corporation. Each incorporates what was in the previously introduced device and adds additional features. Apple more or less reinvented the same device several times, each one larger than before and more expensive. Apple has had a very narrow focus in terms of products. And I believe that they've reached the end of the line - the next device would be a laptop, and we already have them. All in all, from a technological viewpoint, Apple's run of successes is not going to go down in history as advancing any important technology,
much less inventing any. Jobs simply did not have the talent of the truly creative. He is much more the marketeer and retailer, and the guy who selected the right ideas from his subordinates.

Ramon123, you have most of your facts wrong. I do not want to enter into a cross fire with you. The thought of convincing you of anything is very far from me, as no more than 1 in 20 people are able to change their opinion, even when presented a 100% valid argument (I have high regards for that kind of people; everybody makes mistakes, but those who understand and acknowledge them are advancing while others are stuck with their ideas forever). "Man believes what he want to." But just let me present you the facts the way I see it.

First, about Apple. They created the first personal computer that would connect to a TV as a monitor and could be attached a keyboard to in '76. Microsoft invested $150M in Apple as a settlement of the court fight over Windows ripping off Mac OS. Also, Microsoft agreed to write software for the Mac in order for that platform to survive (so they could have "competition" and not be broken up for monopoly abuse). Apple could not refuse the latter offer as otherwise the Mac and therefore Apple would have died shortly afterwards.

I love Java an I have written tens of thousands of lines of code during the last years (it's not even my profession). It is great but not revolutionary. It's just a very well executed hybrid between compiled languages and interpreters.

IBM never owned Microsoft Windows nor the Intel processor. The IBM PC was put together in a few short years from available parts and an OS that Microsoft bought for $50k from a guy who wrote a Quick and Dirty Operating System (QDOS). They did that out of desperation that Apple II would take over the market of PC that Apple created.

You confuse invention with innovation. Maybe none of the companies had true inventions (even inventions are made up using previous ideas) - the first PC I think would qualify. But both of them innovate like crazy every day. Innovation is improving in new ways what is already known. While each small innovative step may seem innocent, when you put together hundreds of them, it just becomes fabulous. For those who do not understand tech it seems magical.

Stop (all of you) this babbling about Apple, otherwise I start marking these posts as inappropriate for the forum. I'm sick of reading one person writing about Apple like it is the second coming and others bashing it like it is nothing. Apple does not make cars. It makes few irrelevant gizmos and makes money doing those. Who cares? It's irrelevant.

Go ahead. Just for fun, I will mark as inappropriate all your new posts about the clearance of the Model S. More than 100 such comments about a high end sporty sedan are really inappropriate (hint: don't come to that thread which has a clear title, unless you want to understand / discuss how to also make - not only spend - money on Tesla).

Hey now, let's all cool it. Everybody knows Xerox is really the one responsible for personal computers. ;)
There's some flakes of history in here: http://vimeo.com/25380454

I think it was Heron of Alexandria who made first rudimentary computer.

@Nicu, in what way "Is Tesla the next Apple?" indicates making money? To me that hints about someone who thinks Apple is the second coming praising Apple and thinks Tesla could be similar for automotive industry. Enough of this.

If you had read my article on SeekingAlpha that I linked in my first comment, you would understand better. Nobody forces you to come to this thread anyway. So stop venting your frustrations by trying to make the policeman on Tesla's forum.

And leave me alone with the second coming ... do you think it would be better than the first? And the first is probably just a story for those gullible enough ...

@Brad
Yes, Xerox had nailed lots of things. But their corporate structure killed the most innovative project ever (Apple didn't even get all those tech at first; the difference is that they payed for Xerox's tech). As I have said, there are few companies who are ready to kill their golden goose and take risks on an unproven revolution.

It's all good! Except for that Discoducky guy, what a tool!

There's two things I can't stand in this world: People who are intolerant of other peoples comments and the Dutch!

Austin Powers reference was used above and was not used to defame anyone of the people listed here: http://en.wikipedia.org/wiki/Dutch

Interesting is that I didn't know Ronald Regan was referred to as "Dutch"? Oh no, another polarizing figure to discuss here. Forget it!

Quick guess. Who is the CEO who said:
"I believe in just staying really focused on creating the best possible product and just - creating products that amaze and delight customers. And if you do that, then I think you create a valuable company. And I think people sort of forget that great companies are built on great products. And so our focus is just making the best products in the world." ?

If you do not want to guess one, what about short list of 2 or 3 ?

Elon

It's Elon. I will ask the same question on some Apple forum to see what happens :)


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