Cars

Why Ford Should Buy Tesla

Published On 01/27/2017 Published On 01/27/2017
Tesla Model S
Courtesy of Tesla

What I'm about to say sounds outlandish, and to the best of my knowledge, no one at either of the companies involved has seriously considered such an idea. Still, this is something that should happen. With nearly the entire automotive industry marching toward electric vehicles, Ford should seriously consider buying Tesla.

For a decade, Tesla has failed to make a profit from producing a high-quality, mass-market vehicle. The carmaker has yet to build the first-rate supplier network it desperately needs to make the numbers work, because it takes more than a mere decade to complete the impossibly complex supply chain that established manufacturers enjoy. The only companies qualified to help Tesla overcome this gap in both quality and cost right now are those established manufacturers, and of the potential suitors, Ford would benefit the most. 

If Tesla is going to fulfill founder Elon Musk's vision of hastening a future that is filled with fully electric and autonomous vehicles, the company will need a partner. Ford has everything that Tesla needs, and also stands to benefit more than any other potential suitor.

Courtesy of Porsche

With Tesla, Ford could dominate a hyper-competitive electric luxury market

Ford has spent billions of dollars trying to make the Lincoln brand a legitimate contender to Lexus and Mercedes, yet Lincoln's sales aren’t even a third of its competitors, and they remain less than half of what they were a generation ago. Meanwhile, Tesla as a car brand has become one of the most popular in the United States -- even more than direct competitors in the $100,000-plus category.

Tesla's competition is about to get serious, however, with big-time names like Porsche, Jaguar, and others set to introduce luxurious and sporty electric vehicles across a swath of the high-end price range. A Ford-Tesla merger would finally give Ford the opportunity to sell a premium American luxury brand that can not only compete toe-to-toe with the best in the world, but also inspire a new generation of buyers who already see Tesla as the automotive equivalent of Apple and Google.

A move like this frees Musk to pursue his SpaceX ambitions.
Courtesy of Tesla

Tesla is about to be at a big disadvantage

Tesla faces a big problem on the near horizon. A $7,500-per-vehicle federal tax credit -- along with even more generous carbon credits -- have helped the company yield well over $5 billion in federal subsidies since 2008. While the tax credit helps Tesla sell a boatload of $100,000 cars, the $7,500 subsidy has a manufacturer cap of 200,000 -- meaning that after Tesla sells 200,000 electric vehicles, a number it is bound to hit in 2017, consumers will no longer be able to get the tax credit if they purchase a Tesla. But they'll still be able to use it against one of Tesla's competitors, putting Tesla at a big disadvantage.

Tesla hasn't found a road to profitability even while enjoying the benefits of those tax credits, and if Tesla has to take another hit on every car it sells, that blow could be fatal. Ford, however, could absorb a challenge like that in the short and mid-term, and possesses the missing pieces that would bring Tesla toward profitability much more quickly.

Courtesy of Ford

Ford has the infrastructure to complete Musk's vision

For all the impressive technology Tesla has developed, the company still can't come close to competing with the big boys when it comes to actually producing high-quality cars efficiently. Tesla's initial quality is the worst of any luxury automaker, according to Consumer Reports. Hundreds of Tesla's suppliers don't have the tools needed to build a quality vehicle, which is why the recent launch of the Model X was an unqualified failure. Elon Musk's recent pronouncement that suppliers "had mostly gotten their shit together" is mere lip service to the reality of Tesla's painful quality issues.

If Tesla were to be bought by Ford, it would gain instant access to Ford's squadron of suppliers that can produce millions of high-quality parts consistently, on time, and on budget. Unlike your cellphone, an electric vehicle has to rely on the absolute perfection of over 10,000 parts, plus an assembly process that's heavily dependent on robotics, glitch-free software, and stringent quality control standards: three areas in which Tesla has fallen short over the last several years. Put simply, Ford has the requisite infrastructure to produce however many Teslas it can sell.

Courtesy of SpaceX

As for Elon Musk, he has long asserted that his primary motivation with Tesla isn't money, but creating a transformative change in the public's perception of electric vehicles and solar energy. To that end, joining forces with Ford would enable Tesla's electric vehicle and autonomous-driving technologies to take another giant leap forward toward ubiquity and scale -- and also free up Musk to pursue his SpaceX ambitions.

Courtesy of Ford

Joining forces would help both companies realize their self-driving ambitions

Ford wants to have thousands of fully self-driving cars by 2021, while Tesla is proud of being one of the first in the world to unleash a semi-autonomous system on public roads. It's an an emerging technology that requires automakers to find the right collaborators in Silicon Valley and its Israeli equivalent, Silicon Wadi, which has largely taken the developmental lead. Chrysler, for example, has begun working with Waymo, while Volvo is working with Uber to carry out real-world testing. Tesla has the relationships but is financially pinched, while Ford has strong cash flow but few enduring partnerships in the field.

A Tesla-Ford merger would bring a wealth of financial resources and brainpower under one team that must master much more than just the intricacies of the self-driving car. 

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Steven Lang is an auto auctioneer, car dealer, and former part-owner of an auto auction near Atlanta, Georgia. Feel free to reach him directly at his Facebook page

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