Ultra-low margins, evidence to debunk the theory about the mysterious Apple vans and an alternate reason for the company to have an automotive team make an Apple Car unlikely
With all the reports of an Apple car being in the works, naturally Wall Street is excited. Shares of the Cupertino-based tech company soared to new highs on Monday as investors consider what’s ahead.
But will the Apple car ever hit the roads? We’ve heard arguments on both sides. There’s one from Judy Mottl of the Tech Times and another from Jeff Reeves that was published on MarketWatch. I tend to agree with both of them for several reasons.
An Apple car would bring low margins
It seems very unlikely that Apple would move into the car market because of how carefully it protects its margins. Mottl makes this point as well, and it’s something GM management mentioned when they warned Apple about making a car.
Automakers don’t tend to turn a profit in the first few runs of their vehicles, and this is something that will likely drive Apple management crazy. According to Bob Lutz, former vice chairman of GM, the best-case scenario for margins in the auto industry is between 5% and 6%. That’s a far cry from the healthy margins Apple targets and investors demand.
How an Apple car would measure up to a Tesla
Included in the rumors about an Apple car are comparisons with Tesla and suggestions that Apple will buy Tesla. Reeves notes that Apple’s “other products” alone are already churning out almost three times the amount of sales Tesla sees. An Apple car would just be a drop in the bucket and would barely move the needle, especially with such low margins.
Apple also probably isn’t interested in buying Tesla, and it seems doubtful that Tesla CEO Elon Musk, who owns 27% of the EV manufacturer, will sell out anytime soon. Besides, as Reeves points out, Apple would have to shell out $30 billion at Tesla’s current valuation, which is highly unlikely.
And anyway, Apple likes to develop its own hardware, so why would it buy Tesla?
What about those mysterious Apple vans?
Some have speculated that the Apple vans that have appeared on some streets in California offer hints at what an Apple car might look like. Others have said they’re probably for the company’s mapping service, which I tend to believe more. And as it turns out, those Apple vans have begun to turn up on streets in other parts of the U.S., which backs up this theory more than the Apple car theory.
Everyone knows Apple Maps needs help to catch up with Google, and Google has already shown how well sending out special mapping vehicles works in terms of capturing the nation’s roads. Clearly Apple is taking cues from Google in this area.
If Apple is working on a car…
So if all the rumors are true and Apple does have an automotive team—and it seems likely that this part of the rumors is true—then there are other reasons for this. It would make more sense that Apple wants to tinker with an actual car to experiment with CarPlay and improve its auto operating system. Who knows if Apple’s car team is even working on an Apple-branded car?
Perhaps the team is in place to work with vehicles made by other automakers to optimize CarPlay for them. Apple has been very secretive with the automakers it is working with, so they may not even know to what lengths Apple is going in order to improve CarPlay by experimenting with it in their cars.