Debate about whether Apple will ever sell a car continues, and naturally so does the comparison with Tesla Motors. Many have suggested that Tesla is the Apple of the car industry, even fantasizing about Apple acquiring Tesla.
Other sides of the Apple car debate
But the crux of the matter continues to be: will Apple even build a car in the first place? We could list the reasons why or why not until we’re blue in the face, but those arguments are tattered and old. Instead, let’s consider how Tesla has changed the barriers to entry just in time for Apple to get into the industry.
Let’s also think about Apple’s supply chain prowess—which goes directly against the auto industry as a whole.
Tesla changes the barriers to entry
Bernstein analysts compiled a lengthy report about the likelihood that Apple is building a car and what lessons we can learn from Tesla in terms of entering the auto industry. One of the standard arguments we’ve heard against Apple getting into the auto industry is that the barriers to entry are just too big.
However, Tesla has shown that this isn’t really the case any longer. For example, Tesla employs only 270 automotive engineers, according to Bernstein, compared to the more than 10,000 automotive engineers BMW employs. Tesla also spends a lot less on research and development compared to other automakers—as little as one-tenth as much, in fact, as the company’s annual spend has been $400 million.
Apple could afford to build a car
The Bernstein team notes that Tesla’s research and development spending pattern is similar to that of Apple’s when it developed the iPhone. The company spent $700 million on developing the iPhone, while Nokia was spending $6 billion. In the same way that Apple disrupted the smartphone industry with the iPhone and low development expenses, Tesla is disrupting the auto industry in spite of its low R&D spending.
The analysts added most people probably wouldn’t even notice if Apple added another $500 million or even $800 million to the $8 billion it already spends annually on research and development. Bernstein analyst Toni Sacconaghi said the very little Tesla spent on developing its car is “modestly encouraging in terms of the kind of impact that you can have for a relative pittance for Apple.”
Is Tesla really disrupting the market?
Max Warburton, one of Sacconaghi’s associates at Bernstein, disagrees with the view that Tesla is disrupting the auto industry. He doesn’t think the EV manufacturer is moving quickly enough to be “truly disruptive.” He noted that Tesla has shaken up the industry a bit but that the company is only selling 35,000 cars a year—hardly enough to “starve” luxury automakers’ cash flow.
He also pointed out that Apple has the financial means to be truly disruptive in the auto industry, unlike Tesla. According to Warburton, most of the issues that are slowing down Tesla are “the laws of chemistry and physics.”
The automaker has been focusing on reducing the cost of the battery so that it can get into the mass market with a less expensive car. Apple, on the other hand, may have a better chance to really disrupt the industry because it’s got a widely recognized and trusted brand to go along with its very deep pockets.
“I guess it’s possible that if you were to gear up what Tesla is doing and add more capacity more quickly and get out there with an even more well-known brand, certainly a brand that’s got history, you might be able to move quick enough to start to take meaningful share from the existing companies,” he said.
What about manufacturing an Apple car?
As a consumer device company, Apple outsources all of its manufacturing to other companies, which is at odds to the auto industry at large, as each automaker runs its own factories and builds its own cars. Tesla is no different in this respect, despite the other similarities between it and Apple.
Warburton noted that outsourcing manufacturing has long been a dream for automakers. However, right now he thinks most automakers just have too much capacity. “The last thing they want to do is go and build a car elsewhere,” he said. “Their economic and social responsibility is to fill their existing plants.”
What he didn’t explain though, is whether a new entrant into the auto industry, like Apple, would have the ability to do this since it doesn’t have the capacity to fill. For now, this is one question that remains unanswered because Tesla isn’t doing anything new in this area.
Tesla’s assembly process nothing new
The analyst said that when he toured Tesla’s factory, he discovered that the company’s “approach to bolting a car together is very, very standard, and remains highly capital intensive.” He added that Tesla hasn’t found a better way to assemble cars, despite all the talk about it disrupting the industry.
He does think Tesla is the “most vertically integrated car company since Henry Ford’s days in River Rouge.” It sounds like maybe he hasn’t toured BYD’s facilities, however, as the Chinese electric bus maker runs an entirely vertically integrated operation, controlling every single aspect of the assembly process, even the mining of key materials.
Further, Sacconaghi and Warburton discussed where Apple might be able to find a manufacturer that could assemble its cars. Indeed, this would be hard, if not impossible to do because the vast majority of cars in the world roll off assembly lines run by the brands that make them. Apple would certainly have an uphill battle here if it attempted to outsource automobile manufacturing.
