Everybody wants to be like Apple (NASDAQ:AAPL).
But comparing any company to the Mac maker is inherently a loaded proposition, since not every one can be one of the most successful and highly valued companies of all time. While it's tempting for some to compare Tesla Motors (NASDAQ: TSLA) to Apple, the comparison falls short in some very important ways. Yet, at the same time, both companies do share some strategic similarities.
Here are all the ways how Tesla isn't like Apple. (Click here for the list of ways that Tesla is like Apple.)
As you know, Apple is infamously secretive about what it's working on. Steve Jobs built a corporate culture and organizational structure intended to protect that secrecy, and this helps drive interest in what the company is working on. The Apple rumor mill is a living and breathing entity. This also prevents competitors from knowing what's coming while mitigating the Osborne effect.
On the other hand, Tesla isn't particularly guarded, in part because it's in a completely different industry. Automotive design and development cycles can take four to five years, and Tesla shows off its products years in advance. Model X was unveiled in 2012, originally targeting a 2013 launch but was delayed until 2015. The company just unveiled Model 3, which won't ship until late next year. Tesla also tends to leak from the top (much like Apple), with CEO Elon Musk often spilling the beans prematurely.
That being said, Tesla does keep a few cards close to the chest (what will the real Model 3 steering system be like?), but for the most part Tesla is not notoriously secretive.
Apple's "walled garden" approach has been very successful over the years, and the company maintains it because it believes that it is the best solution for the customer in terms of privacy, security, and performance. Apple prefers to control all aspects of its devices, both physically and developmentally. Apple now embraces third-party app developers on its platforms, but it was initially hesitant.
On the other hand, Tesla is quite open. The company famously open-sourced its patents in 2014, allowing any company to utilize its technology with the hopes that it would spur greater EV adoption, which has been Tesla's goal all along. Musk thinks other companies are using them, but isn't sure because you don't even have to contact Tesla to use the patents.
Tesla has also long expressed willingness to share its supercharger network, provided that other carmakers share the proportionate costs relative to fleet usage, and that the vehicles can support the 120 kW current. Traditional automakers are likely averse to this because they don't want to rely on Tesla technologically, and most current EVs cannot handle the technical requirements. Vehicles that support alternative DC charging standards top out at around 50 kW (CCS) to 62.5 kW (CHAdeMO), even though the standards themselves can support higher charge levels.
Additionally, Tesla's API is available for third-party developers to use and innovate on. There are several third-party mobile apps that can access Tesla vehicles using the API, once a customer authenticates with their Tesla login credentials.
The most important way that Tesla is not like Apple is its valuation. While Apple has traded at a substantial discount to the market for quite some time, Tesla sports a sky-high valuation. When it comes to valuation, Tesla and Apple are worlds apart.
This is naturally predicated on future growth expectations. Apple has become so large (currently TTM revenue base of $235 billion) that investors are skeptical about the company's ability to grow. Meanwhile, Tesla's valuation absolutely depends on future growth, which means the company must execute on Model 3 to live up to the valuation. Without Model 3, Tesla isn't worth its $30 billion market cap.
Market and profit share
Apple is the second-largest smartphone manufacturer in the world by unit volumes. In the U.S. alone, over 40% of all smartphone users have an iPhone. Perhaps more important, Apple gobbles up nearly all of the industry's operating profits, since most rival handset vendors struggle to post consistent operating profits.
This is extremely unlikely to ever happen with Tesla. The auto business is plagued by capital inefficiency and modest net margins, and the competitive landscape is very different. Pricing power is often fleeting. Even with Model 3, it's unfathomable to imagine Tesla dominating the roads and hogging all the profits to itself.
This is an incredibly important operational aspect. Without a doubt, manufacturing at scale will be Tesla's biggest execution risk in the years to come. By far. Those 325,000 Model 3 reservations mean little if Tesla can't build enough cars to satisfy demand.
This also raises a question about Apple's rumored entry into the auto market. Apple uses contract manufacturers to assemble its gadgets, a model that is only implemented in very limited cases in the auto industry. Manufacturing is the most important operation for any major auto OEM.
While there are a lot of similarities between Apple and Tesla in terms of product strategy, retail model, and more, the dissimilarities deserve extra weight because you can't ignore the realities of auto manufacturing or divergent valuations.
It would be irresponsible to say that Tesla is going to become "the Apple of the car industry," because that simply won't happen. But at the same time, investors should appreciate some of the shared philosophies.
Evan Niu, CFA owns shares of Apple and Tesla Motors, and has the following options: long January 2018 $180 calls on Tesla Motors. The Motley Fool owns shares of and recommends Apple and Tesla Motors. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.