
Apple will Not buy Tesla for $75b in 18 months - simonebrunozzi
http://brunozzi.com/2015/02/16/apple-will-not-buy-tesla-for-75-billion-dollars-in-18-months/
======
mullingitover
> Well, that battery might cost more than the entire house. And for what
> purpose? So I can disconnect from the electric grid for a week, and then
> reconnect again when the battery has run out? Or to power it with expensive
> solar panels?

I can't figure out if he's being willfully obtuse here.

It's to allow you to get off the grid entirely. If you generate enough solar
to cover 100% of your usage, right now you're still slapped with a grid
connection fee. The battery covers you overnight and makes grid connection
totally unnecessary.

Oh but what about charging your car? Battery swap stations.

~~~
ChuckMcM
He actually makes two assumptions both of which hurt his point, the first is
that cost of the battery is that of a house (given that an 85kW Tesla costs
$90K and you don't need the car with it, we'll guess the battery is less than
$90K) so lets call it $75K. And the second is that stabilizing energy costs
doesn't change anything else.

If your house is nominally electric (using gas for things which gas is really
good at, making heat) and your gasoline bill is non-existent because your
vehicle is electric. It means you can cost out power with a
depreciation/replacement cost model which gives you much better forecasting
ability. One of the reasons given for taking 'energy costs' out of the whole
inflation/cpi metric was due to its volatility.

I tend to agree with his thesis that Apple will not buy Tesla but I don't
think he makes a good argument against the battery claim.

~~~
simonebrunozzi
Author here: to run a house for a week, one of Tesla's battery would not be
enough; you would need a few. I guess I wasn't much clear on the post.

~~~
eyesee
Average household consumption is around 30-ish kWh / day, so an 85 kWh Tesla
battery would give you almost 3 days. The question I have is why you would
need to store more than a day's energy for your home, assuming you charge it
with solar?

I suspect you need much less than this, and a 10-20 kWh home battery would be
just fine to do the job.

~~~
aetherson
Rain?

~~~
ddingus
Rain is going to lower the solar output, but a properly sized installation
will marginalize that.

If a person is going to make the "off grid" investment, managing a balance
between the solar and battery investments is going to be necessary.

Batteries have cycle time and capacity limits, and their cost is high, but
slowly improving. One probably should not assume a battery core will last 20
years, though some likely can.

The solar installation probably will go 20 years, and solar can deliver
savings in both the generation of electricity, as well as light and heat. A
properly sized installation is going to be designed to work, in lower grade
weather conditions, and after it's lost some of it's efficiency, for a very
long time.

Of the two, it makes the most sense to be lean on the battery investment. New
tech, cost reductions, etc... will likely play out a few times during the life
of the solar installation.

And that installation can be added to / upgraded somewhat more incrementally
without having to give up earlier investments in many cases.

The battery, unless it is very modular, won't share these same advantages to
the same degree.

And the house can be improved as well. Smart devices to manage power use, like
the Nest thermostat, can be upgraded or trained, or just will deliver battery
aware use profiles.

People can adapt a little. Just choosing to wear some clothes in the winter
rather than maintain that comfort zone heat level saves quite a bit. LED
lighting, thermal assist for warm water, use of more energy efficient
materials, and the list goes on and on...

A couple lifestyle changes could very well see that battery last longer than
expected.

------
loceng
The bigger missed point I would say is that Tesla is worth $X billion now only
selling 33,000 vehicles. They can and will ramp up their factory to produce
the ~500,000 annual capacity (1 per minute) once they are able to release the
~$30k model to the masses.

This is when the charging station network will really take off as well.

500k is more than 10x current annual production, and though profit per vehicle
may be less than their current models, we could still assume that they're
preparing to ramp up 10x their size within a very short period of time. There
will likely be enough profit or credit available to build more factories then
- or perhaps take on partners that they build vehicles for. Could this lead
their valuation being 10x what it currently is? Even 5x at what it currently
is would put Tesla at nearly double the value of the suggested $75B purchase
pricetag Apple might pay. It just doesn't make sense.

Also, it seems they're planning to supply houses, not just vehicles, with
battery packs - so they could easily sell tens of millions of home and
business packs every year within the next 5 years, at a much higher purchase
price than an iPhone and with greater long-term savings.

~~~
shalmanese
Tesla has to accomplish _all_ of that just to meet market expectations and
stay at it's current valuation.

For comparison, Tesla sells 33,000 cars and is valued at $25B GM sells
10,000,000 cars and is valued at $60B. The market has already priced
phenomenal growth into Tesla's valuation which is why it's one of the most
short sold stock in the world.

~~~
adventured
It's the same argument used on Amazon of course. Pumpers that proclaim: why
just imagine how much Amazon will be worth once they start generating a
meaningful profit!

Back in reality, were Amazon generating $8 billion per year in net income,
their market cap probably wouldn't move at all unless their forward profit
growth projections were dramatic.

It's maybe most common mistake I see inexperienced, or delusional, investors
make - failing to understand the concept of future returns being pulled
forward.

There's a Chinese stock I always think of when it comes to this, China Life
Insurance (LFC). Back during China's market bubble of 2006/07, the stock was
pumped to the moon, projections were for perpetually high growth for decades.
It was trading at something like 80 to 100 times earnings in 2007 at the
peak... eight years later it hasn't moved higher than that (predictably the
growth collapsed and the PE compressed).

~~~
shalmanese
Isn't that an argument that the market priced LFC exactly correctly and that
exactly what they expected to happen did happen?

------
GreenPlastic
I think an Apple Tesla partnership is more likely than Apple directly
competing with or buying Tesla. Sometime last year, Musk spent some time at
Apple, Tesla has the patents and Apple seems like the right company to license
the technology. They're also a great partner for the gigafactory because they
can get laptop batteries for cheap + batteries for their electric vehicle.

Also, if you're Apple and you're interested in getting into the car game, why
build a minivan? A minivan is hard to design beautifully and doesn't have
mass-market appeal unless you're not trying to compete with Tesla. If you're
truly interested in disrupting the automobile industry, you're creating a
premium luxury sedan - the 3 series of electric cars.

~~~
simonebrunozzi
Gigafactory's output will be 500,000 batteries per year, and it will be
optimized for a specific cell which will be put into Tesla's car.

Apple sells hundreds of millions of devices. I don't think they would ever
plan to use part of that capacity for their own battery needs. Gigafactory's
output is much more valuable if used to sell batteries to other car
manufacturers, for their electric cars.

------
lkrids
> If you think this is a novel idea, you’re wrong. Praise Elon’s great PR
> strategy, but there are already Petafactories (orders of magnitude greater
> than Elon’s Gigafactory, in terms of output) in Japan, China and Korea to
> produce batteries.

There is a disconnect between what the author is suggesting and what Elon has
said multiple times regarding the output of the Gigafactory. For example, from
[http://youtu.be/ZHeR2-ifbg4?t=15m40s](http://youtu.be/ZHeR2-ifbg4?t=15m40s),
"[the Gigafactory is] not just going to be the biggest lithium ion battery
factory in the world, but it will actually be bigger than the sum of all
lithium ion factories in the world."

------
CookWithMe
In a couple of years, there will be no need to own a car for most people. Lots
of car-manufacturers have already started to build out the infrastructure for
"cars on demand" (e.g. drive now, car2go). In Berlin, there is already always
a car within a 5 min walk from my apartment.

Once driverless cars are here, people will just request a car Uber-style and
it'll be wherever they are within a minute in any metro area.

It'll be cheaper to not own a car, and it'll be a lot less hassle than owning
one (as it probably is today if you're taking Uber instead of having a car).

One will of course use mobile devices inside the car, as we do now as
passengers... and Apple makes enough money with that.

~~~
jmspring
I see this scenario happening in cities. But, even sticking to Germany, I
don't see this happening in areas like rural Saxony, the Oberpfalz, etc. Too
rural. This scenario gets even more difficult when you talk about the US or
even the UK and Ireland, large chunks of rural land w/o the density to support
something like this -- same problem rail has had in the US.

~~~
rorykoehler
Over 50% of the world's population lives in cities (and rising). Sure it won't
be for everyone but the trend in certainly going in that direction. On the
other hand if you have the money and will I'm sure you will still be able to
buy your own car.

------
IBM
The most obvious reason why Apple won't buy Tesla for $75 billion is that it's
an absurd valuation in excess on a stock that's incredibly overvalued.

~~~
fnbr
I disagree. If WhatsApp is worth $19 billion, Tesla's easily worth $75. Think
about it: WhatsApp was valuable only because of network effects and the future
potential it had to grow. Tesla actually has revolutionary technology and
massive growth potential- $75 billion is, if anything, low. No reason Tesla
can't grow to the size of other major car companies. Toyota, for instance, has
a market cap of $200 billion. If you think there's a 1/3rd probability that
Tesla will get that big, it's a steal of a deal.

~~~
mdasen
Toyota may have a market cap of $200B, but Ford, GM, Honda, Nissan, Hyundai
Motor, Subaru, Fiat Chrysler, and Mazda have market caps of $63B, $61B, $59B,
$44B, $38B, $26B, $19B, and $12B. You've really picked the outlier in terms of
market cap.

If one thinks that Tesla has 1 in 3 chance of becoming as big as one of the
mainstream brands, it doesn't mean they'll be worth $200B. I don't think
anyone would deny that Honda has been hugely successful and they don't even
merit $75B as a wonderfully profitable company (rather than a company that
just has potential). Mazda is a mass-market manufacturer with some of the most
appealing models out there and they're worth a measly $12B.

Tesla might grow to the size of other major car companies, but that doesn't
mean they'll grow to the size of Toyota. It will be hard for Tesla to grow to
the size of Mazda given the challenges of launching any new car company.
Growing to the size of Mazda would mean increasing from 33,000 vehicles to
1.3M vehicles (growth of 3,900%). And even at that level of sales, we see a
company worth only $12B and I don't think anyone in the auto industry looks at
Mazda as a company with worthless cars. In fact, Car and Driver ranks the
Mazda 3, Mazda 6, MX-5, and Mazda CX-5 as the best in their categories.

I know that it's tempting to look at WhatsApp and compare. Facebook's
purchases may be more about defending its control over social than anything
else.

If you're thinking about buying an automotive firm (even if you think the
future is electric), would Tesla be what you want to buy at $75B? It's
unprofitable now with low volume and an unproven capability to scale to
millions of vehicles per year. Musk is daring and willing to tackle hard
problems like electric charging stations. But for $75B, you could buy Mazda,
Subaru, and Fiat Chrysler (all three for $57B, granted buyouts usually involve
paying a premium of 20% or so, but a 30% premium would be $74B). Does Tesla
have a durable head-start advantage in electric vehicles that vastly outweighs
all the things Mazda has going for it including profitability, vehicles that
the auto press love, volume manufacturing around the world, sales and service
to support millions of customers per year, etc.? Or are long-range electric
vehicles a matter of commitment and willingness to lose money for a while?

Comparing Tesla to Toyota would be like comparing a new entrant to mobile
phones to Apple. It's a poor comparison. Comparing a new entrant to mobile
phones to HTC might make more sense. Similarly, even if Tesla is quite
successful, becoming a Mazda, a Hyundai, a Subaru, or a Honda would be an
amazing accomplishment. I think it's much more likely that GM would be worth
$200B in the future than Tesla. That isn't to knock Tesla, but merely to
acknowledge the reality that GM is already selling nearly 10M vehicles per
year while Tesla would be experiencing phenomenal growth if they sold 100k (or
1%) of the number of vehicles. It seems much more likely that GM will increase
the appeal of its vehicles, increase its margins, and gain the profits needed
to match Toyota's valuation. It's hard to grow that much. I mean, Mazda has
some amazing cars, but I don't think that's anywhere near enough to unseat
Honda nevermind Toyota.

If you think that electric vehicles are the future and that the major
manufacturers won't be able to compete with Tesla in electric vehicles, maybe
Tesla sells 40M vehicles per year while they all end up selling tiny scraps.
That seems unlikely to me. Tesla's patent trove is open for others to use
which means there isn't much of a barrier for others to come along.

Again, none of this is meant to disparage Tesla. It's merely to note that
Tesla would have to have phenomenal growth to become even Mazda's size in
sales, something that is simply hard to accomplish. Even if Tesla ends up
selling 10M vehicles per year (303x their current sales), GM does that and
doesn't have anywhere near Toyota's valuation. That doesn't mean that Tesla
isn't pushing the industry forward, it doesn't mean that Tesla isn't showing
us that electric vehicles can be practical. It's simply to point out that it's
very hard to scale up that much, I think there are genuine questions as to
whether Tesla has any durable advantage long-term, and the reality that most
auto manufacturers that are profitable and way larger than Tesla are worth a
lot less than $75B.

~~~
fnbr
Whoops, you're right. That's embarrassing. I naively assumed Toyota was
representative of the industry as a whole.

You make a good point. I could see Tesla being worth somewhere in the
magnitude of $10-50 billion, but not $75.

[1]
[http://finance.yahoo.com/q/ks?s=goog+Key+Statistics](http://finance.yahoo.com/q/ks?s=goog+Key+Statistics)

------
aerovistae
I think this article's statements about battery factories are misleading re:
"Petafactories."

Factories elsewhere in the world may produce large _numbers_ of batteries, but
from Elon's descriptions the Gigafactory will far, far outproduce them in
total energy capacity output given how much LARGER their batteries are.

Moreover, none of the other factories are in a position to simply "convert"
over to producing such large batteries.

The article would have one believe that the Gigafactory is less important or
unique than it actually will be. Other carmakers will have to buy through
Tesla or build their own factories-- there's simply nowhere else to get them
right now, and creating a place to get them will take significant time and
investment, as the Gigafactory has shown.

~~~
simonebrunozzi
Author here; I don't think it's misleading. There are factories in Japan which
already produce several times Gigafactory's projected output.

------
nickbauman
The gas station issues is contrived. When driving an electric car around one
of the things you notice is that power sockets are WAY more common that gas
stations.

~~~
vacri
And they need to be. You can turn around ten people at a pump in the time it
takes to charge an electric car from a supercharger.

The part I don't understand is how these vehicles are supposed to be run by
people who don't have a garage. The usual idea is that you can recharge your
commuting vehicle overnight in the garage - but what happens for the many
people who park on the street?

~~~
pcurve
good question. some interesting discussions and solutions from current owners
who park on street.

[http://my.teslamotors.com/forum/forums/charging-tesla-
street...](http://my.teslamotors.com/forum/forums/charging-tesla-street-
homeowner-without-garage)

~~~
acadien
There are lots of apartments that don't offer parking as well. Cities will
need to offer some way to charge cars on the street, this will certainly be an
interesting challenge specifically to figure out who pays for the installation
and the power.

------
natch
I have no idea whether anyone will buy Tesla. If Jason or someone he likes a
lot has invested in Tesla, it could be a teaser he put out to try to get
someone else interested (Google). Or it could be his sincere opinion.

I'm going to go off topic from the will-they-be-bought-or-not question because
that seems a bit beyond conclusive at the moment. Even for a random internet
commenter like me.

Instead I'm interested in the author's dismissive attitude toward the
household battery idea.

The author tries to refute Jason. This paragraph is where he lost me:

> And for what purpose? So I can disconnect from the electric grid for a week,
> and then reconnect again when the battery has run out? Or to power it with
> expensive solar panels? I don’t think so.

Just because you can come up with a question, and you can't yourself come up
with an intelligent answer to the question, doesn't mean that the question has
no good answer.

In this case, with just a few moment's thinking I can easily come up with a
better answer to "for what purpose": The answer is, this leads to all sorts of
savings and efficiencies, namely:

\- A good household battery makes the grid more flexible, and gives the owners
of batteries access to cheaper off-peak power.

\- The grid can be less stressed, meaning it doesn't have to be overbuilt as
much. Some of the current maintenance costs can be eliminated or allocated to
more constructive uses.

\- Loads become more balanced, eliminating the cause of some brownouts and
blackouts.

\- Centralized solar becomes more practical.

\- Decentralized solar becomes more practical and useful 24/7\. (And by the
way it is now competitive with grid rates, and getting cheaper every year).

\- Other widely variable energy sources (such as wind) become more practical.

\- New businesses facilitating alternative energies will become viable.
Including possibly some businesses represented today only by twinkles in
Elon's eyes.

\- Over time, not only do battery owners, but other consumers as well, may end
up paying less for power than they would have otherwise, because of the
efficiencies introduced to the system.

There are so many benefits, the kicker being the direct cost savings to the
consumer which will give them a reason to invest in these things. And while
talking about cost to consumer, I consider it likely there will be subsidies
as well, possibly government, possibly corporate, possibly both, because the
other dividends (see above list) are so compelling.

~~~
simonebrunozzi
Author here.

The problem is that Jason's argument was very weak to start with. If you
really want to install batteries in houses, that's going to be very expensive,
AND you are not going to use the same type of batteries that you use for a
car.

Plus, there is no reason why Tesla can think of it, and other companies can't.

~~~
natch
Asserting the argument is weak doesn't make it weak. You have to prove your
case. Your response lacked any awareness of the compelling benefits of the
batteries.

And thinking of the idea is one thing. Being able to manufacture, sell, and
service the batteries at scale is something entirely different.

