Model S. Image source: Tesla.
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Everybody wants to be like Apple .
But comparing any company to the Mac maker is inherently a loaded proposition, since not every one can be one of the most successful and highly valued companies of all time. While it's tempting for some to compare Tesla Motors to Apple, the comparison falls short in some very important ways. Yet, at the same time, both companies do share some strategic similarities.
Here are all the ways how Tesla is like Apple. (Click here for the list of ways that Tesla isnotlike Apple.)
Fanatic fan base
Apple's customer satisfaction and loyalty is the envy of the consumer electronics industry, thanks to a cult-like following, and Tesla is starting to build its own cult-like following of techy EV enthusiasts (I happen to be a member of both cults). Tesla's growing fan base also helps drive the company's media attention, which it relies on to bolster consumer interest instead of traditional advertising.
This is precisely how Tesla was able to have tens of thousands of prospective customers line up at its stores to reserve a Model 3 last month, all without them even knowing what the car would look like. The whole scene was very reminiscent of iPhone launches. Speaking of stores...
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Retail strategy and distribution model
Tesla has also unofficially adopted Apple's retail model. The EV maker sets up stores and showrooms in areas with a lot of foot traffic, so that people can wander in and learn about the car. You don't have to drive out to that part of town where all of the car dealers have congregated, since dealers are often located close to one another to make it more convenient for car shoppers to evaluate different brands.
Tesla showroom. Image source: Tesla.
Like Apple, Tesla does not focus on sales commissions or incentive structures that create a hard-sell environment. Tesla sales representatives do get small commissions, but it's a small portion of their overall compensation, unlike traditional car salespeople. Tesla reps are primarily trained to educate consumers, since there's a steep educational curve associated with adopting an EV. The sales process can easily take a few hours just to answer all of the customer's questions. The product then sells itself.
Once upon a time, Apple relied primarily on third-party retailers to sell its products, but it opened its Apple Store in 2001 to take distribution into its own hands. Apple still sells through third-party retailers, but now has a massive retail operation with 469 stores globally. Tesla only sells directly to consumers and refuses to work with dealers, which is an ongoing battle.
Apple is also famous for an incredibly lean inventory management system, thanks in part to CEO Tim Cook's belief that "inventory is evil." Apple's supply chain is so streamlined in its build-to-order implementation that the company is able to put up unrivaled inventory turnover figures (currently 59.4 turns).
Tesla similarly uses a fairly lean inventory strategy as well. Nearly all of its cars are custom ordered, and the company keeps very minimal inventory on hand at each retail location (how many inventory cars can you keep in a mall store anyway?). The majority of Tesla's finished goods inventory ($476.5 million at the end of last year) consists of new vehicles in transit for delivery.
However, you can't really compare Tesla's inventory turnover of 2.8 to traditional automakers, since the incumbent OEMs utilize the dealer model and recognize revenue based primarily on wholesale deliveries. Additionally, the dealer model effectively outsources the inventory investment, so all of the inventory cars on dealer lots aren't being reflected on the balance sheet.
"Maniacal focus" on the product
At KentPresents last year, Tesla CTO JB Straubel was asked what Tesla's "secret sauce" is. Straubel said that if he had to pick one thing, it would be a "maniacal focus on making an amazing product that customers love." This may sound familiar to anyone who's ever heard Tim Cook talk at any event ever. For a little while during Steve Jobs' absence, Apple lost sight of this, but Jobs quickly got the company back on track upon his return.
Tesla CEO Elon Musk is known for an incredible attention to detail, similar to Jobs. He once demanded that the Model S sun visors be redesigned due to a visible seam since looking at them felt like daggers were stabbing his eyes. Musk added, "We have to decide what is the best sun visor in the world and then do better."
What other automaker CEO would obsess over a sun visor?
This may not apply as much to Cook as it did with Jobs, but Musk is heavily involved in product design. Musk says he spends about 80% of his time in engineering and design, which is probably pretty close to what Jobs did.
Tim Cook introducing iPad Pro. Image source: Apple.
Cook is more of a traditional corporate leader and admittedly not a product designer. But both Musk and Jobs have or had unique involvement in deeper parts of the business than most CEOs. For Musk, that includes highly technical engineering. For Jobs, that included things like marketing and public relations.
Apple got to where it is today by focusing heavily on integration, primarily across hardware and software but more recently incorporating services to a greater degree. Tesla is more vertically integrated than traditional automakers, for better or for worse.
Most car companies are extremely efficient systems integrators of outsourced components. Traditional automakers mostly just develop the engine and drivetrain these days, and even outsource things like infotainment head units. They also offer very little in the way of services (not including financial services).
Relative to other automakers, Tesla emphasizes deeper integration of hardware, software, and services.
Premium market leader
Apple has always positioned its products at the premium end of the spectrum, where it reigns supreme. The company has long resisted outside pressure to release low-cost devices in order to drive unit growth.
The Model S became the No. 1 large luxury sedan in the U.S. last year. Even before that, Model S was a strong contender at No. 2 in 2014. Tesla's overall unit volumes are quite small, but it does very well in the limited number of market segments that it competes in.
While there are a lot of similarities between Apple and Tesla in terms of product strategy, retail model, and more, the dissimilarities deserve extra weight because you can't ignore the realities of auto manufacturing or divergent valuations.
It would be irresponsible to say that Tesla is going to become "the Apple of the car industry," because that simply won't happen. But at the same time, investors should appreciate some of the shared philosophies.
The article All the Ways Tesla Motors Is Like Apple originally appeared on Fool.com.
Evan Niu, CFA owns shares of Apple and Tesla Motors, and hasthe following options: long January 2018 $180 calls on Tesla Motors. The Motley Fool owns shares of and recommends Apple and Tesla Motors. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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