Why Google should acquire Tesla by Mike Kwatinetz @FortuneMagazine March 3, 2014, 1:33 PM EST E-mail Tweet Facebook Google Plus Linkedin Share icons FORTUNE – When Facebook FB acquired WhatsApp last week for $19 billion, it set itself apart from earlier generation technology leaders like Apple AAPL and Microsoft MSFT . Facebook has decided that it wants to own the social space now, as well as in the future, and is willing to pay an ostensibly high price to ensure owning rising players who may one day challenge them. By contrast, Apple and Microsoft believed they could catch up and surpass new entrants (and were both often, but not always, correct) and therefore rarely paid a premium for acquisitions. We will return to this theme in a future blog post by speculating who Microsoft could buy to help ensure more control over its domain going forward. For now, WhatsApp’s acquisition led me to think about Google’s next acquisition. Since Google GOOG has ironclad control over its core domain, search, one M&A strategy is to expand into new areas of opportunity rather than to acquire next-generation competitors (as there aren’t any). What market offers a large enough opportunity to tempt Google? Autos. The worldwide 2013 auto market totaled about $2 trillion, enough to stimulate Google’s interest. But Google will need to leapfrog existing auto technology to have an advantage versus entrenched competition. Technology has progressed to the point where this is possible. MORE: Buffett: We’d like to own more Heinz After years of only incremental improvements, the car industry is approaching a period of fundamental change. Over the next few decades, cars appear likely to become more autonomous and entirely battery powered. Google has seized the chance to become the early leader in technology for Autonomous Cars (ACs), or vehicles that drive themselves. But their beta test required using third-party cars and retrofitting them with Google technology. This limits Google’s ability to fully optimize the finished product. Google also does not have the battery technology to create an Autonomous Electric Car (AEC), which I think will be the car of the future. Leading the transformation may require the capability of building one’s own cars. There is one auto company that has many of the characteristics that make it an ideal acquisition target for Google: Tesla TSLA . If Google acquired Tesla, it could accelerate the development of the AEC. Google would have access to Tesla’s advanced battery technology, state of the art manufacturing, and brilliant engineers which, combined with their own technology and innovative atmosphere, would provide a strong foundation for developing and implementing the features needed in, and desired of, an AEC. Because Tesla is so advanced in its manufacturing and in the introduction of technology within a car, it could provide Google with the strongest opportunity to create an AEC that is attractive at a marketable price. The two key technologies in an AEC are the battery and Lidar (laser radar). Google has taken ordinary cars from Toyota TM , Audi, and Lexus and outfitted them with about $150,000 in equipment to convert them to robotic cars. The Lidar system consumes about $70,000 of that amount. Lidar is a remote sensing technology using lasers to help create a detailed 3-D map of a car’s surroundings. This information plus the GPS system location data and Google’s high-resolution maps are then fed into algorithms that control the car’s movement. MORE: Employees at Bloomberg LP are attempting to unionize In a way, this is just a much (much) more sophisticated version of the robotic vacuum cleaner, the Roomba, which is found in millions of home and maps the layout of a room and then determines a route to clean the floor that insures full coverage while traversing a relatively minimal distance. Of course the Roomba travels at a fraction of the speed of a car and won’t hurt anyone if it crashes. Similarly, a more sophisticated version of Roomba, Anki, has already proven that the robotics and AI technology for self-driving cars is possible. The Anki application is currently in toys but certainly foreshadows the potential for ACs. Already, today’s cars have AEC features. For instance, Ford F has a few models that will self-park, even in a tight space. Radar, cruise control, and GPS now come standard or as an option in most cars. And a few even have adaptive cruise control which slows the car down when it gets too close to a car ahead. The right pairing of players (Google and Tesla) could claim at least 5% of dollars in the auto market within 10 years — about $100 to 200 billion in revenue. Mike Kwatinetz is a founding general partner at Azure Capital Partners, where he specializes in software and related infrastructure technologies. He owns both Tesla and Facebook stocks. This post is from his blog, SoundbytesII .