Tesla is like an ‘iPhone on wheels.’ And consumers are locked into its ecosystem.
Tesla is bringing the strategies pioneered by Apple to the auto industry. Consumers are learning that’s not always a good thing.
SAN FRANCISCO — Tesla released its futuristic “Full Self-Driving” package last year to great fanfare, criticism and the usual stream of video uploads showing off cars that could seemingly drive themselves.
Then something strange happened.
The electric vehicle giant revoked access for some drivers, it said. Tesla CEO Elon Musk announced on Twitter in March that some users who had received access to the company’s most advanced driver-assistance features “did not pay sufficient attention to the road.” Tesla did not say how it made the determination or who among the feature’s 2,000 beta testers — who shelled out thousands for the package that Tesla now priced at $10,000 — would lose access.
But in Silicon Valley, the decision reflected a well-understood formula: Consumers are the subject, and tech giants are in control.
From the time they hit the mass market nearly a decade ago, Tesla’s vehicles have garnered reputations as “iPhones on wheels,” a revolutionary technological leap that did for cars what Apple’s smartphone did for consumer tech. They offered large touch screens, a vast charging network and groundbreaking performance that delivered on the dream of electrification seemingly without compromise, where competing products failed to stitch all aspects of that formula into one.
Consumers can pay a price for being locked into Tesla’s universe, reliant on the automaker for everything from simple repairs to upgrades and software updates. (Jonathan Baran/The Washington Post)
Like Apple, Tesla built its brand on exclusivity and aspirational products, prioritizing the experience of ownership as much as the utility of the device itself. And both companies have integrated software with hardware in a way that revolutionized their industries, making the transition to new technologies relatively intuitive for even the non-tech-savvy user.
But consumers can pay a price for being locked into Tesla’s universe, like Apple customers in the computer giant’s ecosystem. They are at the mercy of Tesla’s way of doing things, from car repairs to software updates.
It’s no accident the companies have a lot in common, according to a half-dozen former employees who worked for both Tesla and Apple, who spoke on the condition of anonymity because of the sensitive nature of the workplace dynamics and for fear of retaliation. Tesla hired managers who brought members of their teams from Apple, importing its design language and culture. Meanwhile, those employees could be dismissive of the automotive expertise within its ranks, the former employees said.
“Tesla is not an automotive company, it’s a tech company that builds cars,” said one former employee of both companies who worked in products.
That also translates to the company’s leadership. Musk, who recently crowned himself “Technoking” of Tesla, has taken after Apple co-founder and Silicon Valley demigod Steve Jobs in more ways than one, some of the workers said.
Musk has been known to spend meetings scrolling on his phone, before lashing out over decisions he viewed as misguided, outbursts that would often precede a firing, according to the employees.
“In the same way Steve Jobs could be cutthroat and terse and explosive, Elon is the same way,” said the former employee, who worked at the companies under both men.
The companies’ shared vision includes an emphasis on some forms of proprietary technology. Tesla uses a unique charging connector, similar to Apple products with their “Lightning” connectors. It has built out what it says is the world’s largest fast-charging network, consisting of more than 25,000 Superchargers. The cars’ groundbreaking over-the-air updates mean users can be subject to sudden performance changes if products become out of date — like battery throttling for which Apple has come under fire. Tesla’s unique systems have also proved difficult for government authorities investigating crashes to decode, a problem that echoes federal authorities’ difficulty unlocking Apple devices.
It’s a far cry from a traditional auto industry built largely on standardization — from gas pumps to windshield wipers, to in-car infotainment systems with Apple CarPlay and Android integration. Tesla has its own touch-screen interface that can prove to be a learning curve for new adopters, though it enables a user experience uniquely suited for its cars — an integration of hardware and software reminiscent of Apple.
Tesla, Musk and Apple did not respond to multiple detailed requests for comment. Tesla disbanded its media relations team last year.
Tesla and Musk have said they want their technology to be embraced by other players in the industry. They have promoted open-source software and criticized the overuse of patents, and Musk has even said Tesla’s Superchargers are “being made accessible to other electric cars,” though it’s unclear whether any agreements are actually in place.
Apple says its closed-source environments help it keep its products secure and free of hostile software. Some critics disagree, pointing to areas where the computer giant falls short.
Tesla’s performance has dazzled investors. The company’s stock has skyrocketed in recent months, prompting Musk to tweet in March that he sees Tesla becoming the world’s biggest company, surpassing even Apple’s more than $2 trillion market cap. (By late April, Tesla was worth more than $675 billion.)
In recent years, some current and former employees said, Tesla has become the more attractive workplace for some in Silicon Valley.
Fueling that recruiting: The prospect of working for a visionary CEO or a company with a goal to change the world. Musk has overseen Tesla’s modern development into the industry leader in electric vehicles. And Tesla has pitched that vision to many who were otherwise concerned about its scrappy, start-up environment that paled in comparison to the state-of-the-art “spaceship” headquarters of Apple or the food and beverage perks of Google or Facebook.
One corporate recruiter in Silicon Valley described the funnel of interchanging talent between Apple and Tesla as “incestuous.” The companies share talent pools of engineers from top schools, the current and former workers said, though Tesla is much less concerned about a person’s formal education credentials than Apple, they said. The person recently in charge of Tesla’s vehicle and mobile user interface design, for example, was previously a senior art director at Apple, though he recently departed Tesla as well. Tesla hired Apple alumnus George Blankenship to lead its retail strategy a decade ago, putting sleek showrooms in malls and city centers, mimicking the experience-focused store model he had pioneered at Apple.
“There is a strong Tesla-to-Apple pipeline that is well-known within both companies,” said another recruiter.
Even Musk has publicly heaped praise on Apple and its workers.
“It’s a great company with a lot of talented people. I love their products,” he wrote on Twitter in 2015, saying he was glad to hear about plans that Apple was developing an electric vehicle.
Automotive alums from Detroit did not garner the same respect, however. “There was no empathy for these people in Michigan,” said the recruiter, describing how Tesla expected them to jump at any opportunity to work in Silicon Valley. And in the halls of Tesla, the auto alums were regarded as “dinosaurs,” the former products employee recalled.
That talent swap with Apple has helped Tesla build a car company that attempts to mimic the successes of the older tech giant, the current and former workers say, in some cases foisting new designs on consumers without market research to back them up.
“I think that we have an empathy problem, a systemic empathy problem, in Silicon Valley,” one of the former employees said, pointing to what he regarded as the companies’ elite attitudes and disdain for market research.
The former employees pointed to polarizing product unveilings like the Cybertruck, which took the proven design of the pickup truck and transformed it into an apocalyptic stainless steel behemoth.
Then there are the system updates.
Months after buying a used Tesla Model S for nearly $46,000, Harpreet Singh began to notice the car wouldn’t travel far enough on a single charge to cover his work trips frequently stretching more than 200 miles.
Tesla had taken about 40 miles of range off his used Model S, which began with 265 miles, in what Tesla said was an effort to protect the battery. The update also slowed down charging times, Singh said. Tesla ultimately agreed to replace what it later concluded was a faulty battery, but at the expense of what Singh has found is slower acceleration.
After the car and its new battery were working properly, Singh began to dread system updates, because they introduced new problems like the shorter range and decreased charging rates.
Singh said he thinks about it like other tech updates. “I’m so comfortable with Windows 8. … Why do I have to change to Windows 10? And then everything breaks,” said Singh, 33, of Cypress, Tex. “Same thing here. … They can do anything to do it.”
That issue, among others, led to a lawsuit from Tesla owners who allege the company issued software updates that reduced range, lengthened charging times and ultimately cut into the value of their vehicles. The plaintiff named in the 2019 class-action complaint, David Rasmussen, 64, of Victorville, Calif., said his used Tesla Model S went from 252 miles of rated range to 217 miles following the software changes. And he said some owners tried to find workarounds to resist software updates.
The National Highway Traffic Safety Administration has an open investigation into Tesla’s battery management software updates.
Tesla has argued it uses over-the-air updates for safety improvements and to enhance the ownership experience.
Apple was accused of “throttling” old devices, slowing down customers’ iPhones to preserve their batteries as operating systems updated, essentially nudging them into buying new devices. The company agreed in late 2020 to pay $113 million to settle an investigation by nearly three dozen states on the matter. The agreements with states did not require Apple to admit guilt.
Tesla isn’t the only automaker updating its vehicles over the air, but it has made a mark on the industry by using the technology to introduce dramatic changes that affect driving dynamics, even improving the cars’ brakes overnight. Some of the changes would require a trip to the dealer for any other automaker. Jaguar, for example, boosted the range of its I-PACE electric vehicles by 12 miles in 2019, but the tweak required an in-person service to unlock.
Some of the employees who made the leap between Tesla and Apple said they found Tesla to be sloppier on execution. Tesla put still-developing products, from Autopilot software to its newest cars, in the hands of consumers without the steady hand and design direction preventing the software bugs and quality control flaws.
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Tesla billed its “Autopilot” driver-assistance suite as a way to enable the car to drive itself, with its ultimate iteration “Full Self-Driving” ushering in the era of fully autonomous vehicles for consumers. But industry competitors and safety-minded officials are wary of Tesla’s nomenclature, saying it paints an impression far beyond the vehicles’ actual capabilities.
Owners have taken notice of the shortcomings. Stephen Raynor, an attorney who lives Richardson, Tex., was alarmed when his Model S equipped with Full Self-Driving abruptly veered toward a highway barrier as it approached a toll road exit near his home.
“It’s just not ready for prime time,” he said of Tesla’s Autopilot suite. “It just didn’t read it right and it wanted to go left and the exit was right.”
Tesla has argued that Autopilot carries a nearly 10 times lower chance of a crash than a vehicle in normal driving. The company says its connected fleet enables it to “develop features that can help Tesla drivers mitigate or avoid accidents.” And Tesla says its over-the-air software updates allow it to make safety enhancements well after a car has been delivered.
Apple‘s focus on hardware and software integration has in some cases meant higher costs, limited compatibility and little customization. Apple didn’t want users to manipulate its closed-source environments or mess with its meticulously designed products.
Tesla has made similar design decisions, even ones viewed as user-hostile, or that flew in the face of common industry practice. The company recently debuted a “yoke”-style steering wheel for its refreshed Model S. With a half-moon shape that sacrificed ergonomics for a racing-inspired, futuristic look, the component was criticized as a downgrade to user-friendliness, which analysts said had implications for safety.
And Tesla has even stated it aims to phase out the gear selector, replacing the standard park, reverse, drive and neutral setup with a gear “swipe” option in the cars’ center screens, to flick between drive and reverse. Tesla said it ultimately wants its cars to predict whether they should be going forward or backward.
Apple, too, had made design decisions that struck some as tone-deaf. Jobs famously eschewed market research, saying it was instead the job of the company to show customers what they wanted. The company nixed the ubiquitous headphone jack from its smartphones, forcing the adoption of Bluetooth ear buds, and has eliminated certain ports in favor of thinness and streamlined design, making users rely on dongles to connect accessories. And it came under a swarm of criticism for its “butterfly keyboard,” a space-saving component noted for its tendency to break before Apple phased it out.
Adding to the pattern: a trend toward shorter life spans generally associated with tech devices vs. traditional cars.
Consumers and critics balked earlier this year when Tesla’s acting general counsel argued with regulators that its cars’ iPad-like touch screens should not be expected to last the life span of the vehicle, an argument that was anathema to an industry used to “automotive grade” components. That was a key issue for Tesla because the touch screens serve as a command center for the car, hosting the climate controls, navigation and music, and even functions such as opening the glove box.
After initially sparring with regulators, Tesla agreed to recall tens of thousands of Model S and X vehicles over the touch screen failures.
“It’s like its superpower and Achilles’ heel at the same time: It doesn’t do things by the rule book,” said a former senior employee.
Analysts said Tesla turned the traditional carmaker-owner relationship on its head.
“The argument that equipment on modern cars that cost that much is not expected to last that long — that is a major violation of the auto industry as we know it,” said Mike Ramsey, an automotive analyst at the firm Gartner’s CIO Research Group. “If you’re going to adopt the consumer electronics ethos, you can’t do it halfway.”
Full self-driving features are also not transferrable between cars, meaning an owner who has shelled out $10,000 for the software would have to buy it for their next Tesla as well.
Musk has said, however, that Tesla will look into upping the trade-in value for a vehicle with Full Self-Driving, after some owners complained about having to purchase it twice.
Tesla has also sought to restrict how drivers use the features it bills as self-driving, suggesting they could not, for instance, use them for ride-hailing on Uber and Lyft. Instead they could leverage them only for Tesla’s own ride-hailing network built by a fleet that Musk envisioned would consist of 1 million robo-taxis by 2020, a target date that proved overly optimistic.
Owners also face difficulty finding easy repairs and frequently turn to Tesla out of fear they will void their warranties. Raynor, the Texas attorney, said his Model S touch screen suddenly went half-blank for two days, limiting access to features such as the backup camera and climate controls.
“With all the electronics, very few mechanics want to get near it,” he said.
Apple's move into the EV market may not be the threat to Tesla that some believe, Morgan Stanley analysts say
Is Apple's EV future a threat to Tesla?
In December, Reuters reported that Apple was targeting the EV market in 2024 with battery technology that "could 'radically' reduce the cost of batteries and increase vehicle's range."
The news caused Apple's stock to rise amid speculation of long-range 'iCars'. Talk has died down since, and Apple's stock is back down around $130 per share.
Still, for investors in Tesla or other EV plays, there was some anxiety around a sizable competitor like Apple entering the space, and Wall Street observers have claimed that the company is a real threat to Elon Musk's electric vehicle powerhouse.
Morgan Stanley analysts aren't so sure, though.
In a December 29 webcast, Morgan Stanley's Apple analysts, plus its Chinese and European battery teams, came together to discuss Apple's EV prospects and its potential threat to Tesla.
In the webcast, US IT hardware and Apple analyst Katy Huberty discussed how she believes Tesla will fare against the new EV player, arguing the company faces two potential futures.
For Huberty, "the question is, is Tesla Blackberry or is Tesla Samsung?"
"After the iPhone launch, Samsung was a very successful company alongside Apple for many years, and as the market shifted from feature phones to smartphones, Blackberry fell to the side even though they were early in the market."
"We think there is an example where both Tesla and Apple could be successful for many years and help grow the market together," the analysts concluded.
In the opinion of Morgan Stanley analysts, Tesla is more like Samsung, and they maintain a price target for Tesla over $800 per share.
Although many investors are just hearing about it, Apple's EV ambitions are not new. They kicked off in 2014 with what the company dubbed Project Titan.
Since then, the tech giant has seen some titanic ups and downs on its EV journey. The company tapped Tesla veteran Doug Field to run the EV division in 2018, though 190 people were laid off the following year.
Despite the cuts, Reuters reported Apple has decided to go ahead with its EV plans in the coming years, and with Field at the helm, some Tesla bulls are worried.
The question becomes, can Apple compete in an industry that is known for far lower margins than its current mid-20% figures, and why is it doing it?
The size of the market is one clue. Smartphones are a $500 billion annual market, while transportation is a $10 trillion annual market. If Apple could capture even a small percentage of EV sales, it would mean a huge revenue boost.
As far as margin concerns go, Morgan Stanley's Katy Hubert said, "I would remind everybody that when Apple entered the PC, handset, and wearables market, the margins of competitors were razor-thin. And through vertical integration, as well as driving significant scale on a small number of SKUs, Apple has been able to enter industries with low profitability and earn very strong margins. I don't see why autos would be any different."
In Hubert's opinion, Apple can definitely compete in the EV market, despite the low margins, but that doesn't mean it will beat out Tesla.
"Apple really only succeeds when it's vertically integrated. This means designing the components and designing every part of the product," Hubert said, "We don't think partnership with another automaker is a real path for Apple."
Partnering with other EV players won't cut it, and that means Apple is still years away from a true product offering.
Though even without Apple in the picture, Tesla is already facing a slew of new challengers in the industry. From legacy carmakers like Ford and VW to new EV entrants like Rivian , Nikola , and NIO , the EV industry is growing crowded.
Shares of Apple rose over 3% on Thursday, while shares of Tesla are up over 5%.
Tesla bull Cathie Wood says Apple should’ve bought the EV pioneer, but ‘we’re happy they didn’t’
Closely watched money manager Cathie Wood told CNBC on Wednesday that Apple could have owned the driverless vehicle market by purchasing Tesla when given the chance during the electric vehicle maker’s troubled Model 3 ramp-up.
“We’ve been watching Apple very carefully for years now. Because what is an autonomous vehicle? It’s the ultimate mobile device,” she said in a wide-ranging “Squawk Box” interview, during which also she talked about her Ark Invest strategies, the returns she expects long-term, and buying Zoom on its recent drop.
Apple shares hit all-time highs last Friday and then again Monday — rising solidly above $2.5 trillion in market value — following last week’s Bloomberg report about the tech giant accelerating efforts to launch a self-driving vehicle. Apple was not immediately available to respond to CNBC’s request for comment about its autonomous ambitions. Tesla was not immediately available either to comment on Wood’s comments.
“This is very hard work — and with all the management turnover, we’d be surprised if they’re able to pull it off that quickly,” Wood said, referring to a Bloomberg report in June about the departures at Apple’s autonomous unit of three top managers. In 2018, Apple lured Doug Field, then Tesla’s senior VP of engineering, back to the company where he had previously worked. Apple also hired myriad other former Tesla employees.
Wood — a longtime Tesla uber-bull and shareholder and believer in CEO Elon Musk — told CNBC, “This should have been Apple’s market. Apple should have bought Tesla, actually when they were given the opportunity. We’re happy they didn’t.”
Musk revealed, in a tweet in December 2020, that he reached out to Apple CEO Tim Cook “during the darkest days for the Model 3 program” about the possibility of selling Tesla ”(for 1/10 of our current value).” Musk said Cook “refused to take the meeting.”
The first Model 3s, a less expensive EV sedan aimed at mass-market car buyers, were delivered in 2017, after increasing production to meet demand was problematic. In 2018, Musk tweeted that the car business was “hell” and that he was sleeping at the factory to try to solve the problems.
Fast-forward to today, Tesla has joined the $1 trillion market cap club, and Musk, the largest shareholder in the EV company, has been selling billions of dollars of his stock holdings.
Wood told CNBC she sees “nothing wrong” with Musk selling stock and taking profits and paying billions of dollars in tax bills related to stock option grants.
Regulatory filings late Tuesday showed that Musk exercised options to buy 2.15 million shares of Tesla and sold 934,091 shares worth just over $1 billion. Since his Twitter poll on Nov. 6, asking whether he should sell stock, Musk has unloaded 9.2 million shares worth $9.9 billion.
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