As Tesla Approaches Golden Age, Comparing It To Apple Makes More Sense

NOV 6 2018 BY EVANNEX 12


Comparisons between Tesla and Apple are nothing new, but with the Silicon Valley automaker poised for a new wave of growth, it’s a good time to revisit the parallels between the two disruptive companies. A recent article from ARK Investment Management explains the similarities in eerie detail.

*This article comes to us courtesy of EVANNEX (which also makes aftermarket Tesla accessories). Authored by Charles Morris. The opinions expressed in these articles are not necessarily our own at InsideEVs.

Above: Tesla and Apple are often compared to one another (Image: Smarter Analyst)

In 2007, Apple had already existed for three decades, but beginning in that year, a wave of new products – the iPhone, iPad, Apple Watch, and App Store – catapulted the company into a new dimension, and caused revenue and market cap to grow tenfold.

Before blastoff, Apple was selling computers, which were widely regarded as a commodity product, mainly to a few niche markets such as audio/video professionals, people who resented Bill Gates and people who just had to be different. However, the company’s strategy of vertical integration and consumer focus – precisely the opposite of the business model that PC makers were pursuing – allowed it to charge premium prices and command fanatical customer loyalty.

Above: ARK Invest Founder and CEO, Cathie Wood, talks about Tesla and points out similarities with Apple (Source: Yahoo Finance)

The parallels to Tesla should already be apparent, but looking at Tesla’s position in 2018, they become even more striking. ARK’s analysts see “the outlines of another Apple in the making,” and point out that “Tesla resembles Apple in three key areas: a strategy of vertical integration, an imminent product inflection, and a business model transitioning from hardware to services.”

Apple’s strategy of vertically integrating hardware, software, services, and retail was very much a contrarian one. In 2007, conventional wisdom was that companies should focus on “core competencies.” Apple’s competitors all specialized in one layer of the stack. However, in a time of rapid innovation, vertical integration can enable a company to get a head start on the rest of an industry by developing key enabling technologies in-house. To give just one example, Apple was able to create the first multi-touch smartphone because it created its own multi-touch system, something no other company was anywhere close to developing.

Above: Vertical integration similarities (Source: ARK Investment Management)

“Tesla picks up on Apple’s vertical integration strategy but takes it further,” write the ARK analysts. “In addition to hardware, software, and retail, Tesla also owns and operates manufacturing facilities as well as a global Supercharger network. Vertically integrating battery pack production at its Gigafactory is why Tesla is the only high-volume EV manufacturer today. Had Tesla waited for the supply chain to catch up, it wouldn’t have been able to launch and scale the Model 3 for years. In our view, this is a key reason why no automaker has released a viable competitor to the Model 3 thus far and why no company will be able to do so until 2020 at the earliest.”

Apple’s spectacular 2007 to 2012 growth was driven by the release of the iPhone, iPad, and the App Store in quick succession. As is the case with Tesla, Apple’s vision of the products it wanted to build was often ahead of current computing, microprocessor and battery performance. Things started to take off around 2007 because the enabling technologies to build a high-performance handheld computer finally became available. “Having built up decades of software and hardware expertise, Apple was positioned to seize this opportunity and create the blueprint for modern mobile computing,” notes ARK.

Above: Falling cost of lithium-ion batteries (Source: ARK Investment Management)

Like Mac computers in the early 1990s, Tesla’s vehicles haven’t broken into the mainstream, because they are simply too expensive. The main reason for this is battery costs, which are dropping rapidly. ARK estimates that the cost of lithium-ion batteries will fall below $100/kWh, achieving cost parity with gasoline cars, by 2022. Elon Musk has said that he expects to reach this tipping point by the end of 2018.

This cost decline is a big deal, to put it mildly. Once EVs reach cost parity, there will simply be no technical reason for anyone to build fossil fuel cars anymore (although financial and political reasons are likely to keep them on life support for quite a while). “Tesla has spent more than a decade preparing for this moment and, in our view, has the most compelling EV pipeline of any company,” says ARK. “The Tesla Model 3 and Model Y (a crossover SUV) have the potential to catapult EVs into the mainstream, much like the one-two punch from the iPhone and iPad in mobile computing.”

Above: A look at the growth trajectory of both Apple and Tesla (Source: ARK Investment Management)

Tesla’s vertical integration – it’s selling not just a car, but an “ecosystem” of products and services – creates many income opportunities. “In the 2000s, Apple’s iPod+iTunes combination created a dual revenue stream from hardware and music,” ARK notes. “Today, thanks to its massive installed base of iPhones, Apple offers a range of services spanning music subscriptions, cloud storage, and app sales that generates $36 billion annually and accounts for roughly a third of Apple’s market cap. Competitors like Samsung that do not control the customer relationship generate no material revenue from services.”

In ARK’s view, every successful growth company goes through a “golden era” when the stars align and expansion takes place more rapidly than anyone could have foreseen. “For Apple, that time was from 2007 to 2012. For Tesla, we believe the golden era is just beginning.”


Written by: Charles Morris; Source: ARK Investment ManagementYahoo Finance

*Editor’s Note: EVANNEX, which also sells aftermarket gear for Teslas, has kindly allowed us to share some of its content with our readers, free of charge. Our thanks go out to EVANNEX. Check out the site here.

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12 Comments on "As Tesla Approaches Golden Age, Comparing It To Apple Makes More Sense"

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Better comparison is 1978 Apple when they made Apple II run by inexperienced tech guys making product that mass market did not appreciate (yet). IBM was GM of the day. With upcoming Tesla Y (Apple IIe), they will indeed grow. But it will also be just as volatile as they transition for more innovation (ie, Lisa, Mac).

The difference is Apple was in an industry that was about to explode – smartphones. The car market isn’t going to explode and I don’t buy cars yearly because of built in obsolescence.

But smartphones only replaced dumbphones. Just like EVs will replace ICE cars.

Down vote this man!! 😉 I was going to sit back, and say I agree with Evannex vertical integration comparison, and see more freedom at Tesla as others fail to compete. What’s changing, consistent with theflew, is the Tesla buyer profile is becoming less “early adopter”, and more “Apple customer”. Both can claim to be tech fans, but are very different when it comes to risk-taking. I don’t own Apple products for the same reason I may be leaving Tesla. The first phase, where you had to be comfortable thinking electricity and cars were viable, and willing to take the financial hit and/or work on it yourself (like maybe a Saab), is over. Thankfully, they are successful. So successful they have the opportunity to define the EV experince, where at shareholder meetings Elon tempts the crowd with taking the steering wheel away. Folks know where I’m going. My stumping over the UI “updates” is, to me, more evidence Tesla is beginning to manage obsolescence. This is very “Apple”. There was the chorus who didn’t want Model 3’s screen in the center. The chorus wanting a HUD. Drowned out, today, is a the shrinking minority of >2y/o car owners, who don’t… Read more »

The S curve has worked for all products besides the iPhone.
But, yes, if everyone bought a new car every year the S curve would be a Vertical Line.

Watch the EV market explode.

And watch the ICE market collapse.

It’s easy to forget there was the smartphone market before the iPhone, such as the Blackberry, Windows Mobile, and PalmPilot; my wife had a Treo. The iPhone caused the smartphone market to explode because was the first smartphone done correctly, as much as the others (famously Microsoft’s Steve Balmer) scoffed at or (like BlackBerry’s Co-CEOs) dismissed the iPhone early on. In the end, Apple gets the profit share leaving the cheap imitations from Samsung to squash everyone else. A lot of parallels between the story of Apple and Tesla exist. Similarly, all-electric cars did exist (EV-1, Leaf, etc.) before Tesla came out with Model S, 3, X, but the first Tesla with Supercharging was the the first all-electric mobility solution done correctly. Bob Lutz, Sergio Marchionne, VW CEO Diess, and many at Porsche and Toyota scoffed at Tesla’s solution, but now many incumbent makers are trying to emulate Tesla’s offering (Taycan + 800V charging, VW’s vaporware + Electrify America). Today Tesla is single-handedly making the BEV market explode because it’s the only maker of long-range BEVs at mass-market quantities. So I forecast that Tesla gets the profit share leaving the cheap imitations from China (like BYD) to squash everyone else.… Read more »
Pretty please .. don’t compare Tesla to a company that is THE standard for outsourcing everything related to production and development of core technology to others. Tesla is in my eyes superior to Apple in all ways that in important. They develop, design and manufacture their own products. If Tesla was like Apple, Tesla would just buy all the parts from somebody else, give it a fancy fictional name like they give their (Samsung/LG made) “retina” display and so on, and then have it assembled by piss poor workers in China, working 12+ hours a day, 6 days a week, and with 1 week vacation – so they can see their kid (that live in the grandparents farm way up north in China) one week a year. Having to live in the factory area, together with 6-12 other workers and share one room. They would then have to pay for food and their room, and are left with pocket change. I was there at Hon Hai (Foxconn) in China on a tour a few years ago, and I lost all respect for Apple. When I was there we saw the shipping containers from Samsung delivering the storage and RAM, the… Read more »

Don’t worry, the way car economics work there often is a huge advantage in production in the target market. There is a reason many foreign car companies have plants in the US, it avoids shipping cost and tariffs that make the difference between being competitive and being just too expensive (or non-profitable). Come to think of it, in the Trump era that goes for made in China iPhones as well the way the trade war is going.

Poor Apple…Oh well, at least it can absorb any tariffs and still make enormous profits.

If we keep looking at Apple, we can also see that it’s not impossible for competitors to catch up with the technology. And faster than one might think. It’s easier to catch up than to lead.

Which is good news for customers, because they will have more choice. But also for Tesla, because they can’t saturate the whole market alone anyway and it will keep them on their toes.

And they will likely have a marketing advantage for a long time. Basically everything they do gets hyped in the media. Which makes it almost free marketing. And any new product will likely get compared to theirs.

Oops, got a bit sidetracked there, hehe

Apple is big due to the most powerful form of power in the universe and that is hype.

The hype is slowing down due to everyone owning a cell phone and people are losing the will to spend a $1000 dollars on a new phone vs $100 dollars for a phone that does the same thing.

I would not want Tesla to get super massive based off of hype.

But I do thing Tesla could get massive though due to the simple idea that the US and the world uses a lot of oil and there are over a billion gas powered cars in the world along with a million megawatts of fossil fuel power as of 2018 which is bigger then eight billion people owning smart phones.