6: The Tesla-Apple Comparison

Much has been written comparing Apple and Tesla. Much of the comparison if obvious and I agree with much of it. Both companies have transformed our expectations of technology in meaningful ways. I have been a user of Apple products for many years and its history –  including many rises and falls – has fascinated me over those years.  It is a story full of lessons about hubris, ego, genius, complacency and decisions made out of desperation. And, of course, luck.  Apple was at death's door more than once before it figured out that it needed to take huge risks on products the world didn't know it needed.

The Old Rainbow Apple Logo

In the beginning, Apple was the archetypal computer company started by two Californians in a garage. Now we know it as one of the world's most valuable companies with one of the strongest brand identities ever established. Along the way, Apple was about to fail at least a couple of times until its dramatic resurrection after Steve Jobs rejoined the company in the late 1990s.  Jobs had been exiled from Apple and formed a new computer company, NeXT, whose operating system became the key to the rejuvenation the Macintosh computer, which itself dated back to 1984 under the original tenure of Jobs.  Apple needed NeXT's operating system, and Jobs came with it.

Most users of iPhones, iPads and Apple Watches today probably know little about the origins of the company or its history prior to the 2007 introduction of the iPhone.  By that point Apple was already a 30 year old company and on the way to health but hardly on the way to becoming an all-conquering giant of a company.

Tesla by contrast is still a startup, 15 or so years old, but it is only a little over 10 years since its first car reached its first customer.  That car, the Roadster, was a low volume car and as much a proof of concept as a commercial product.  Elon Musk, if not the founder, at least a founder of the company and very much it driving force, remains in charge.

The Tesla Logo

I think that there are at least three ways in which Apple's resurgence under Jobs and the Tesla phenomenon under Elon Musk are parallel. The most obvious is the presence of a driven, visionary, inspirational and fearless front man who is fully in control of his company.  Another is that these companies had confidence that their breakthrough products would succeed, even though they were not responding to consumer demand.  The third is a willingness to bet the company on the basis of that confidence.

Mature companies and even immature companies in mature businesses cannot innovate like Apple did in 2007 and Tesla does now.   There are simply too many forces aligned against big gambles.   Tesla is already chafing at the bit as a public company. Elon Musk has made it clear over the past year that he would much rather take the company private.   Instead of focusing on the growth of the company in the way that he would prefer, Musk and the management of Tesla have to respond to shareholder expectations, and it is galling that many of those shareholders are openly betting against the success of the company itself.

Tesla has poured vast resources into the building of Gigafactories and Supercharger networks.   These are capital assets developed at great cost to the company’s liquidity and are necessary to success of the company, but in the short run these investments have kept the company in the red even as sales have improved dramatically.  But these investments are a necessary part of Elon Musk's long-term plans to become a dominant market force.

Apple of course started as a computer company, pure and simple. There has always been a debate whether it is at heart a hardware or a software company, but until the 21st century no-one thought of Apple as anything but a computer company. When Steve Jobs announced the iPhone in 2007 there were two immediate reactions. The public saw the product as something revolutionary and desirable.  The entrenched industry leaders in the cell phone business saw the iPhone as a massive miscalculation, and they was Apple as a naïve upstart venturing outside of its core competence.

We know which perception won out. 

The same is true of Tesla and its cars. The public did not know that it wanted a sexy, functional and practical electric car until one existed.  The established car companies have dipped their toes into electrification but failed to understand that electric cars are not geeky appliances for a market niche.   Cars have to be sexy to capture the hearts of the public.  This is not a new rule.  But somehow no other company thought of putting that core precept together with an electric power train.

Those who bet against Tesla believe that so-called Tesla killers are coming and that when the real car companies begin producing electric vehicles Tesla will be revealed as an amateurish upstart, just as Apple seemed to be in 2007.

Today, Nokia, Blackberry and Motorola are still vainly trying to recapture the massive lead they had in 2007.  Palm and Treo (remember them?) are dead. Every smart phone sold today is a slavish copy of Apple's iPhone. Some of them may be as good as Apple's iPhone and some may even be better. But only Apple had the vision and the courage to break the mold and bring to market a product that would come to be adopted as something essential but that nobody realized could even exist.

Tesla has taken a similar leap. It was not at all apparent that there was a demand for an electric car that would lead hundreds of thousands of sensible people (such as yours truly) to put down money on something they had never seen, could not touch, let alone drive and likely would not get for years.  Without any advertising.  All electric cars from here on will be inspired by Tesla and until something equally revolutionary happens, every electric car will follow Tesla's lead.

Just as Apple had to learn the phone business, Tesla is having to learn the car business. But the way cars have been made, sold and serviced in the past is not the only way.   Only by imagining something radically better could Tesla make the breakthrough that it has. And only by belittling the upstart and imagining that their business must continue as before, have the traditional carmakers missed the boat on electric cars.

There have been some interesting announcements recently in the electric car market. Jaguar has the I-Pace in showrooms now. Audi and Porsche have announced some beautiful vehicles which have not yet been delivered. All of them, however fail in the most important metric – each of these announced and existing cars has less range than our Model 3.

It is as if the existing manufacturers believe that they just have to get products into the general ballpark already defined by Tesla and customers will flock to them and away from Tesla. I believe that this is a massive miscalculation. It may be – just as Android and Samsung have challenged Apple's dominance in the phone business – that a Tesla equal may eventually emerge from the pack, but I highly doubt that a Tesla killer is in the cards.

A final lesson can be taken from the Apple - Tesla comparison.   Apple continues to refine its products years after the death of Steve Jobs. It continues to produce beautiful and well-designed phones, tablets and computers under the leadership of Tim Cook and Jony Ive, but Apple no longer innovates as it did in the days of Steve Jobs.  Apple is now a trillion dollar company and no longer the upstart; it has become the industry standard, protecting and extending its market share and profits.  It no longer has to bet the company and it never will again.

Apple's place in the tech world will -- one day -- be taken by a company which by necessity is willing to risk everything for a big breakthrough.  We don't yet know who that will be. 

Tesla, though, is still an upstart. As Elon Musk has said, he was forced to bet the company to ramp up Model 3 production this summer. He has said that the company was within a few weeks of death. He has also said that he will never again have to bet the company on a product.

This is reassuring, of course, but at the same time complacency will be the enemy of Tesla as an innovator. The company has to stay hungry, stay desperate and to continue to think of itself as on the edge of failure.  One day Elon Musk and his ludicrous drive and focus will be gone.  Then we will see if its corporate culture will survive.  I have no doubt that the company will.