Why Google Buying Tesla Would Have Been A Terrible, No-Good Idea

"David Ruddock" (rdr0b11) 04/20/2015 at 16:29 • Filed to: None

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It came out today that, !!!error: Indecipherable SUB-paragraph formatting!!! , Tesla’s Elon Musk sought an $11 billion investment from Google to keep the nascent electric carmaker’s assembly line going.

This deal, of course, was never actually consummated, though it did get quite close to that point if you believe the author of the book quoted in that Bloomberg piece. Very, very close - hands were shook, lawyers called, agreements drawn up, and despite a few “sticking points” toward the end of negotiations, it sounds like this was a pretty close to done deal.

But as we now know, Tesla’s immediate financial woes were soon to end, and the company turned its first quarterly profit. My point? Let’s be thankful things did turn around, because I think Google buying Tesla might have ruined the first truly disruptive automaker in America in decades.

To set the stage for you here, I’m no Google hater: I love Google. I’m a bit of a Google fanboy. I love Android, and I love Gmail, and Google Inbox, and Google Maps, and Google+ (really!), and Google Express, and Google Now, and probably a handful of other Google products most people can’t be bothered with in the first place because they feel as though were beta tested on sentient gerbils for 3 hours before being released to the public en masse. The reason I love so many of these products is that Google is unafraid to experiment and fail, to try and break into new businesses or products and see, maybe, if there’s a better way of doing things. Google even tries to disrupt itself.

But apart from perhaps the systematic grinding of large rocks into subsequently smaller rocks, and then crushing those small rocks into even smaller rocks yet, ad nauseam, until they become those little pebbles you put in aquariums, I can think of no business less suited for Google’s intervention than a luxury carmaker. Here are the reasons why I think that is.

Google is the antithesis of luxury.

Google has a serious thing for building products for everybody. Most technology companies do, and that’s because most technology companies offer at least some products that are free. Even Apple throws in a bunch of gratis software with your iOS or OS X device that you paid out the nose for, but if we’re talking about the Googles, Facebooks, Microsofts, and Yahoos of the world, most of the products they offer consumers are 100% free.

This is because, in technology, market share is everything - getting more people to use your thing than the other guy’s thing means you get more advertising revenue (either through selling ads or data about your users), eventually reaching a “critical mass” on which a profitable and expansionist business can be built. Tech companies are, generally, about starting from the bottom up - reaching out to users who want to spend no money at all, and maybe eventually one day, years later, potentially monetizing those users as your offerings and services expand.

This is, on its face, the antithesis of a luxury brand. Luxury brands are inherently not about being available to everybody. Luxury is about being available to the people who can afford to have it, and then proceeding to let everyone else know that you can afford this thing, hey you, look at me, I can afford this $90,000 car, look over here, I make more money in a week than you do in three months, no really, you should look at my car, because I doubt you’ll be buying one any time soon.

Google, on the other hand, would like to build things for everybody. Even Glass was an experiment to see if such a product could be mass-consumer viable, the price was just a way to limit distribution to enthusiasts. Google and Tesla’s brands seem wholly at odds here: Tesla is built on the notion that owning one of the company’s products means that A.) you’ve made it, and B.) that you get it. It’s not a hybrid, it’s not a typical S Class or Escalade, and it’s not just an electric car - it’s a Tesla. While it is certainly a car for Googlers, it is not the sort of product you’d ever seen Google build. It is, by definition, exclusionary, excessive, and maybe even a bit snobby.

2. The Model X would probably be dead.

All those issues with the falcon doors? You think Google would let Tesla just keep pouring money into testing, redesigning, and delaying the Model X to kingdom-come as an investor in a company that was previously near-bankrupt? Certainly, Musk’s proposed deal with Google came with an 8-year guarantee of his tenure, but I didn’t see anything about Google having no oversight of how much Tesla is allowed to invest or borrow for its various projects.

The Model X is ambitious, risky, and has been delayed ten ways to Sunday. This is the kind of project a tech company has no problem cutting, because tech companies are constantly killing products that are well into their development cycles (how many TVs do you think Apple has killed internally?). Companies like Google tend to operate with arbitrary deadlines and project milestone requirements because it’s very hard to understand intuitively when something like a piece of software has reached a practically insurmountable or otherwise terminal problem. When things don’t make deadlines, things get cut - resources are reallocated to other teams with more promising projects in development.

In the car world, where product development costs are crazy high and a failed vehicle launch can sink an entire company Tesla’s size within months, the Model X is a terrifying investment. What if the doors have problems? What if the fix for the doors is going to cut into the profit margins substantially? What if consumers don’t like the doors? These are the kind of thoughts that lead to compromise. And I think in this case the compromise would have been killing the Model X.

For Google, it would have made perfect sense. Kill the troublesome and expensive X, put all remaining steam into the affordable Model E - the small luxury car that Tesla hopes will attract a much larger mass-market audience to the brand. The kind of thing that builds market share.

But really, that would be a terrible idea. Tesla’s existing market share was built through success in a very difficult market to penetrate, the one of large luxury sedans. The company is doing incredibly well for a newcomer in this segment. Luxury SUVs make the perfect branching-out point for Tesla, because they’re essentially just big luxury cars with more ride height and storage space. An electric luxury SUV? Does it come in matte white? Be still the Kardashian’s beating hearts.

The delays, the costs, the practical issues - they’re worth it. The Model X is exactly the car (or SUV) Tesla needs to grow profit and expand the brand intelligently. Hiding away and developing the Model E for 3-4 years while churning out an occasionally-updated Model S could easily have sunk Tesla. The company has the good will of consumers now - use that clout to sell a luxury SUV with some crazy fucking doors. Even if the doors have compromises, they’re still going to get tons of attention for Tesla and people are going to buy these cars readily. For a company like Google, this may feel like grabbing the low-hanging fruit - failing to “innovate” in a way that feels genuinely disruptive. And that leads me to my final point.

3. For all its innovation, Tesla is still a highly conventional company making highly conventional products

Tear away the batteries and the electric motors from a Model S, and what do you have? Apart from the world’s most useless Model S, you have what is a fairly typical luxury sedan, albeit one with a surprising amount of storage and interior space. Yes, a Model S has a huge touchscreen, over-the-air car OS updates, a frunk (frunkfrunkfrunk, I love that word), and lots of safety and technology features (many of which its competitors also have). But the reality is that a Tesla is still basically a car . It’s just an electric one, and probably the nicest electric one ever built. That’s a huge accomplishment... but it’s not #innovator #disruptive #moonshot #startupvomit - it’s not the car Google would build.

And that’s because it’s still a car. It still uses power from a dirty grid, it’s still made with batteries that aren’t very environmentally-friendly to mine (even if they are cleaner when you consider all the factors), and it’s still made on an assembly line in a pretty conventional manner, and you still have to drive it yourself (Auto Pilot aside).

Here’s the thing, though: to sell a high profit-margin car in quantity (eg, not exotic or bespoke), that car has to be mostly conventional. It has to meet the needs of a large enough group of consumers willing to purchase it, and those consumers have to be able to use that car in the way they would use pretty much any normal car, within reason.

That car also has to excite and interest them, to take their gaze away from the Mercedes-Benzes, Lexuses, BMWs, and Audis.

Tesla’s ace in the hole there has obviously been the electric, all-battery-powered drivetrain. No one else is offering it on a comparable vehicle, and the Model S’s impressive range means that for a considerable group of people that owning or leasing one isn’t going to present any major practical difficulties over a conventional gasoline or hybrid vehicle. And that’s part of what makes it brilliant: the Model S is like an everyday car in many ways, but in a select few, it is not, and those select few ways have resonated perfectly with a cultural shift back toward discussions of environmentalism and conservationism.

Tesla’s success is, more than anything, emblematic of changing views of how we should take care of the planet, be personally mindful of our choices as consumers, and seek to go out of our way to be more environmentally friendly in bigger ways than just recycling.

This is mostly a state of mind change, though, not one of groundbreaking technology or highly disruptive business models. The fact that Tesla’s sales system is disrupting the luxury car dealer racket is an admirable side effect, but it’s not the entirety, even the majority, hell, not even a plurality of the reason behind the Tesla’s generally excellent sales for a new car company. Tesla has caught a cultural wind, and they’re riding the company’s future on it.

Google, on the other hand, is building the car you see at the top of this post. And I think that says all that needs to be said about Google and the culture of cars.

Dwhite - Powered by Caffeine, Daft Punk, and Corgis > David Ruddock 04/20/2015 at 16:44

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I agree completely.

Tesla is making an innovative car for today. Google would want to make an innovative car for tomorrow. And there would be a big difference between how you would achieve those goals, just look a google self-driving concept to see the differences between the two.