It has been clear for a while that Apple (NASDAQ:AAPL) is cooking up something related to cars. We know that the tech giant has a self-driving car program (and that one of its test vehicles was involved in a minor fender-bender in August.) And we know that several senior Apple executives are car enthusiasts, as was the company's late co-founder, Steve Jobs.
Simply put, Apple is interested in cars. That interest has led to years of speculation that Apple might buy Tesla (NASDAQ:TSLA). But so far, it hasn't happened.
It's easy to see why Tesla's investors and fans like the idea of an Apple acquisition: Apple is highly regarded for innovation; Apple has a huge cash hoard; Apple is cool. And it's easy to see why they keep floating the idea: An Apple acquisition would surely come at a big premium to the current share price -- a comforting thought given the growing uncertainties around Tesla's business.
But I say it isn't happening -- not now, and probably not ever. Here are four reasons why.
1. If Apple wants to build a car, it doesn't need Tesla
What would Apple actually get if it bought Tesla?
For starters, it would get two factories: Tesla's auto factory in Fremont, California, and the big battery "Gigafactory" it owns with Panasonic in Nevada. (Tesla has more factories in the works, including a solar-panel facility in New York, but these are the factories that are up and running today and relevant to the car-making business.)
Apple would also get a lot of intellectual property: the designs of Tesla's three current models, the work it has done to date on upcoming models, all of its software, all of its patents, and the rights to Tesla's brand.
What would it cost Apple to duplicate all of that, minus the Tesla brand (which it doesn't need), in a flat-out effort? Maybe $10 billion and two to three years?
Consider: Apple has deep expertise with lithium-ion batteries and manufacturing, an established global retail network, and world-leading expertise with software, computing hardware, and design. It also has the ability (and deep pockets) to attract and retain any talent it might need in order to fill its knowledge gaps.
Why does it need Tesla? I don't see a convincing answer to that question.
2. From Apple's perspective, Tesla is extremely expensive
What would it cost to buy Tesla right now? As I write this, Tesla's market cap is about $47 billion. The company's recently aborted go-private attempt aimed at a valuation around $72 billion. The price that Tesla's board would accept today is probably somewhere between those two numbers -- for the sake of argument, let's say $60 billion (it's probably higher). To that, we add Tesla's debt, roughly $10 billion.
Realistically, it would cost Apple at least $70 billion, probably more, to acquire Tesla. It would also take months to complete the deal -- and during those months, we'd be hearing plenty of complaints from retail Tesla investors convinced that the company is worth much, much more than whatever Apple offered.
Do you see Apple CEO Tim Cook signing up for that when it would cost him $10 billion to create Apple's own Tesla, from scratch? I don't. If we know anything about Apple, it's that the company doesn't overpay for acquisitions.
3. Apple wouldn't get Tesla's biggest asset
Apple almost certainly wouldn't get Tesla's greatest asset: Elon Musk. Musk might be enticed to stick around and "advise" for a year or two, but I don't think anyone realistically expects him to report to Cook for any extended period.
It's not clear what Tesla would be worth without Musk, but it's probably a lot less than Apple would have to pay to get the company today.
4. Apple won't settle for being Tesla
Tesla has established itself as an innovative and credible automaker. That's a huge achievement for a start-up, and Musk and company deserve real props for it.
But for a giant like Apple, that's table stakes. Whatever Apple is planning, it's a safe bet that it isn't aiming to become just another automaker. If it enters the auto business, it will do so with a product that it believes to be transformative -- a dramatic change from cars-as-we-know-them.
Apple isn't going to settle for being Tesla. If it gets into this business, it will be to leapfrog Tesla -- and the rest of the global auto industry. If it can't see a way to do that, it won't play.
Wherever Apple is going, it won't be with Tesla
Apple reportedly explored the idea of making its own car a few years ago. It apparently discarded that idea, at least for the time being. It now appears to be focusing on creating a self-driving system. It's possible that Apple isn't thinking beyond countering the system created by Alphabet subsidiary Waymo, should Waymo decide to license its system to the established automakers.
It's also possible that Apple has something more radical in mind. Either way, it seems clear that an acquisition of Tesla doesn't fit into Apple's plans -- and it certainly doesn't make financial sense. I don't see it happening.