This analysis was first published in SvD Näringsliv, in Swedish, on January 28th, 2021.

Elon Musk wanted to sell Tesla – but did not even get a meeting with Apple’s CEO Tim Cook. Today, they are about to become competitors instead. But both have a common view on how the cars of the future will be developed – electric and self-driving.

With today’s share price, it feels like ancient history. But in 2013, things looked dark for Tesla’s CEO, Elon Musk. Car sales did not pick up and it would be another four years before they could launch their cheaper version, the Model 3. Musk approached Apple CEO Tim Cook at the time to inquire if they were interested in buying the company.

Cook refused to even meet with Musk.

The rest is, as we say, history. Cook probably regrets it today. Apple’s long-standing and infamous car investment – Project Titan, which has been going on since 2014 – is delayed, Tesla shares soared and made Elon Musk the world’s second richest person. On Wednesday night, the two companies came with earnings reports – very strong results for Apple, a market disappointment for Tesla.

To understand why cars are even on Apple’s agenda, one need look no further than to Silicon Valley, where I lived and worked for eight years. Every day I saw anonymous cars crammed with sensors. Two people were sitting in each car – but they were self-driving. Their job to collect data calibrate the software. This is also confirmed by vehicle analyst Sam Abuelsamid, who told Axios that “the only thing we actually know for sure is that they have developed and tested automated driving systems”. Building cars is about hardware engineering. Building self-driving cars is about software.

Apple’s interest in cars is not surprising. They are usually not the first with innovations – iPhone and Apple Watch were far from that in their respective segments – but are good at combining hardware and software to create a good experience.

The focus in recent years has been on service development where margins are better and predictability greater. And it has worked – in Apple’s latest quarterly report, services account for 14.1 percent of revenue, $15.8 billion in total.

Apple’s view of margins gives us a clue as to how they think about the car investment. Apple has a gross margin of 38 percent, while the corresponding figure for Volvo Cars is around 16 percent and Tesla at 19 percent. Regular car sales from Apple is therefore unlikely – it simply does not fit. If, on the other hand, you see self-driving cars as a service, rather than a product, it becomes more logical. Maybe Apple Taxi, rather than Apple Car?

This is also where Musk and Cook meet. Elon Musk predicted that he would have a fleet of driverless Tesla taxis by the end of 2020. That has still not happened. But what other carmaker would even formulate that idea? And here we also find part of the explanation for Tesla’s incredible price development over the past year.

Aswath Damodaran, a professor at New York University, describes Tesla as a “story stock”. That definition requires that you are a young company, that you act in a giant market, and that the CEO is a brilliant storyteller. Tesla has all three. And this type of story attracts attention, even from people who do not normally trade in stocks.

When the app Robinhood, which offers brokerage-free stock trading, summed up the year for a 20-year-old student, it turned out that he checked Tesla’s stock price 18,656 times in 2020 – over 50 times a day. When you have that kind of appeal, in combination with an app that has opened up the stock market for a new generation, a p/e ratio over 1,700 matters less.

Tesla represents a new generation of car companies that believe that it is easier for a software company to learn how to build cars, than it is for a car company to learn software. This applies to both electrification and self-driving. These two changes are so great that a clean piece of paper can be a better starting point for speed than being a colossus with a lot of history.

This is exactly what one of the US ditto – General Motors – realized when they already in 2016 acquired the self-driving company Cruise for over a billion dollars. Today, Cruise is valued at $30 billion and has just raised $2 billion in new capital from Microsoft and Honda. At the same time, GM’s own share price is up close to 100 percent in the last quarter.

For all car companies – old and new – it is ultimately about how many cars you can deliver. And here it is worth remembering the actual starting point. In the last quarter of 2020, Tesla delivered just over 180,000 cars, while the corresponding figure for GM was just over 770,000. Apple has – so far – not delivered a single one.

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