Apple Car: For Real This time?

Apple Car: For Real This time?

According to the “official” Wikipedia chronicle, Apple Car rumors first appeared in late 2014. Since then, like a flu virus, the rumor mutates and reemerges every season. The most recent strain says that Hyundai/Kia will be the manufacturing partner with prototypes appearing in 2022 — or maybe 2024 — with production models by 2026 or 2028. We know that there’s large-scale development work on one or more car projects inside Apple Park and other Valley locations, that the company is hiring experts from Tesla and other auto industry leaders. So much time and money invested can only mean one thing: There will be an Apple Car some day!

Therein lies the first misunderstanding. Apple’s vast R&D budget — $18.75B in 2020, more than GM and Ford combined — allows the company to pursue many projects and only ship the ones that show real promise. Yes, Apple occasionally produces failures such as the regretted Cube and embarrassing bugs such as the almost forgotten Antennagate incident, but the company never releases a prototype to alleviate doubt or preempt a competitor. We’re not going to see an Apple Concept Car; there go the 2022 or 2024 prototype rumors.

We remember the rumors propagated by Piper Jaffray analyst Gene Munster who, for close to five years, insisted that Apple was going to ship a magical TV set Real Soon Now. We see a similar phenomenon in the evergreen Apple Car rumors. Of course, there’s a huge difference between TVs and cars: There are many more places to add hardware and software features to an automobile than to a TV set, despite TV manufacturers’ efforts to “add value” (while capturing user data).

That may be true, but this drops us into Tesla territory, a company that gives the German auto industry a good run for its money by skillfully integrating homegrown hardware and software (not unlike a certain Cupertino company). In other words, the fabled Apple Car would have to be a better Tesla. In Theory, the famous realm where everything works, it’s certain that we’ll have a better Tesla…someday. But, again like Apple, Tesla is known for the loyalty of its customers despite the notorious imperfections of the delivered product, software bugs, body panel gaps . (See also the WSJ article How Volkswagen’s $50 Billion Plan to Beat Tesla Short-Circuited which details VW’s failed attempt to develop integrated software for its new electric vehicles.)

While Apple could make a better Tesla with parts manufactured in Stuttgart, Münich, Tokyo, or Detroit and assembled in South Korea or in a Georgia factory, would it be worth the effort? Would it fit the company’s profit profile? Tesla achieved close to 20% Gross Margin in 2020, GM came in at 10% and Ford about 12%. Apple’s Gross Margin exceeded 38%, a different game.

This says nothing of the Sales and Marketing expenditure — after the Gross Margin — that’s required to distribute and service a car. To belabor the obvious, it’s one thing to sell and service a $1K iPhone or a $2K to $5K computer; existing Apple Stores can’t diagnose and fix a complicated, heavily regulated product for which the customer has paid upwards of six figures. You would need different facilities, different people, a different culture.

Still in Theory, that’s not out of the reach of an immensely rich, technically competent, patient, disciplined company such as Apple, which is why I found JP Morgan analyst Samik Chatterjee’s Go Big Or Go Home article interesting. The gentleman posits that the automobile industry’s “Total Addressable Market” approaches $2.5T (as in Trillion) while the smartphone market is “only” $420B. I’ll extrapolate a little: Apple could be shooting for a minority share of the market but a majority portion of the profits, just the way it does in the “smaller” smartphone space…Read more>>