Despite the click bait title of the Business Insider article on Tesla it contains an essential challenge Tesla continues to face in the automotive industry, which is to get to meaningful scale. I believe that number is between 1 and 2 million units in the automotive industry. Sergio Marchionne of Fiat-Chrysler believes it is 6-8 million units because he wants to be a mover and a shaker like Toyota, GM and VW are in the automotive world. It took Hyundai upwards of 3 decades to be included alongside Honda and Nissan. Aston Martin and Ferrari are hobbies relying on the goodwill, parts bins and bank accounts of major auto manufacturers.
Apple, according to the social media universe, wants to be the new kid on the block in the automotive world. Given enough money every individual wants to own an F1 team, Basketball team and/or Soccer team. Since Apple is not an individual it is inclined to design, build and sell its own automobile(s). Apple certainly has enough cash to try the plan many times over. I am afraid that the Apple team will agree with this astute observation by Horace Dediu about the automotive industry. In the meantime, every Apple observer worth his/her Apple insight keeps imploring Apple to buy Tesla. I think it is not the most aggressive move Apple can make, if it intends to compete in the automotive industry. The biggest challenge in automotive industry is not one of design and engineering. It is rather the time it takes to set up and master production and supply chain operations at scale. At scale we mean more than a million units per year. It will be another 10 years before Tesla can get to that scale of production.
The competitive advantage of Tesla’s innovative electric drive train does not look as imposing in light of GM’s introduction of Chevy Bolt. In addition, there are many large players, including Panasonic and LG among others, that would be more than happy to establish battery supply chain at scale. Once we take the electric drive train and battery supply chain out of equation we are left with design, engineering, production and distribution aspects that are real obstacles to becoming a meaningful competitor in the auto industry. Apple can in one swift move become a meaningful competitor by buying an existing auto manufacturer that is operating at scale. The question is which auto manufacturer.
The candidates that come to mind are BMW, Mercedes Benz, Mazda and Subaru. BWM and Mercedes Benz are true luxury brands with sales of 2-3 million units per year each. They are truly global and have the brand strength comparable to and in some places exceeding that of Apple. The only problem is that they are very large organizations, well established and are based in Germany. Taking over companies from Germany is non-trivial. Subaru is a niche auto manufacturer with less than a million in sales and not known for its design sense. That leaves us with Mazda.
Mazda is one of the most distinctive brands in the automotive industry. It’s iconic models, including Miata and RX-7, are beloved by auto enthusiasts. It punches way above its weight when it comes to design. They are affordable to a wide swath of customers and the company managed to sell 1.5 million units globally. Mazda is also not foreign to foreign ownership as it was once majority owned by Ford Motor Company. Apple can buy Mazda for less than $15 billion dollars, which happens be less than the latest quarterly profit. My 2 cents to Apple ends here.