Apple has accelerated its electric car development program. Inside sources familiar with the matter told The Wall Street Journal that the Cupertino company has set an ambitious target to start shipping its cars in 2019. Apple has decided to triple its automobile development team from 600 to about 1,800. However, auto industry veterans have expressed skepticism about the iPhone maker’s plans to enter the fiercely competitive and low-margin auto market.
No reason to believe Apple car will be financially successful
In an interview with CNBC, former General Motors Vice Chairman Bob Lutz said the Cupertino company is currently engaged in a high-margin business. But the automobile is a low-margin sector. He added that there was no company in the world that made profits selling electric vehicles. The only reason automakers make electric cars is to meet the U.S. and European fuel economy regulations. Lutz said there was no reason to assume that Apple’s electric car will be financially successful.
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The former GM executive said Apple has about $200 billion in cash. No one is going to notice if the company burns $30-$40 billion on its electric car project. The electric car market is still minuscule. Lutz said if he were a board member of Apple, he would ask some serious questions about the company’s car plans. However, Lutz didn’t take into account some important things.
Apple loves its sky-high margins, and it wouldn’t even consider entering a market with single-digit margins. The company must have figured out a way to make cars with high-margins. Otherwise it wouldn’t release an electric car at all. Second, Tesla’s Model S enjoys an impressive 25% gross margin, which is higher than most automakers. It’s a different thing that Tesla has been investing every possible penny in itself to grow its business.
Lutz not the only one to question Apple’s ability
Bob Lutz is not the only auto industry veteran who has questioned Apple’s electric car venture. Earlier this year, former GM CEO Dan Akerson said the Cupertino company had no idea what it was doing when it comes to the automobile. Many people in the past doubted Apple’s ability to enter a new market and crush the competition.
Former Palm CEO Ed Colligen famously said in 2006, “We’ve learned and struggled for a few years here figuring out how to make a decent phone. PC guys are not going to just figure this out. They’re not going to just walk in.” Just a few months later Steve Jobs unveiled the first iPhone….and the rest is history!