Apple Buying Tesla Makes Little Sense

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A look at Tesla’s history reveals that it cost Elon Musk $3.1 billion to build the company

Earlier this week, serial entrepreneur and angel investor Jason Calacanis made a sensational prediction that Apple would buy electric vehicle maker Tesla for a staggering $75 billion in 18 months. Reuters, Financial Times and The Wall Street Journal have reported that the Cupertino company is working on a secret project to build electric cars.

Apple Buying Tesla Makes Little Sense

Apple need not buy Tesla

It would be interesting to see an Apple car in reality. Apple has about 1,000 engineers working on the ‘Titan’ car project. The company has been poaching Tesla employees by offering them six-figure signing bonus and 60% salary hike. It indicates that Apple is very serious about the electric car market. The company can either build its own car from scratch or buy Tesla, an established premium brand.

As Calacanis says, Apple would buy Tesla for $75 billion, almost triple its current market value. But Dan McCrum of Financial Times says Apple “need not” buy Tesla. A look at the Palo Alto-based EV maker’s history reveals that it cost Elon Musk $3.1 billion to build Tesla. Its first vehicle was Roadster. Total R&D costs and capital expenditures from the day one to the launch of Roadster were about $125 million.

Next, Tesla came up with Model S sedan, which was named the best car in the world last year. The company also built a manufacturing facility in California. It received $465 million in loan from the Department of Energy. Tesla signed a deal with Panasonic for batteries, and with Daimler and Toyota for the development of powertrain technology.

It would cost Apple far less to build its own electric car

In June 2014, Tesla announced that it had opened its patents for everyone who wanted to use them “in good faith.” According to McCrum, Tesla has spent a total of $3.1 billion on R&D and capital expenditures. The company is building a giant Gigafactory that would cost up to $5 billion by 2020. Of that Elon Musk’s company would contribute $2 billion.

Tesla had 514 employees at the end of 2009, and the number has increased to 5,859 employees today. Apple has already dedicated about 1,000 employees to its secret project. Even if the company has to spend triple or quadruple what Tesla spent to get to this point, it would cost Apple less than 40% of what Tesla is worth today.

The Cupertino company spends more than $6 billion a year on research and development. With Tesla willing to share its patents, Apple may find it even easier to build its own car from scratch. Even if Tesla doesn’t share its technology, it’s a matter of resources and people rather than reinventing the wheel.

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