Can The Apple Car Dominate Tesla?

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As the anticipated Apple Car becomes an ever more solid proposition, the electric car marketplace is about to get more competitive than ever. If Tesla has become the name most associated with electric cars in the relatively embryonic history of the marketplace, Apple might be about to change this permanently. Certainly the California-based consumer electronics giant has come to dominate virtually every niche and marketplace that it has been involved with in recent years, and will indeed be intending to do this with electric vehicles as well.

Apple Car challenges

Of course, Tesla has a significant head start on Apple, having sold thousands of vehicles worldwide, and already built up an excellent reputation for manufacturing electric cars. There is no doubt that Apple will face challenges with producing a road-standard vehicle, even if the world’s most valuable corporation is certainly in a strong position to take on such a major project.

And it has certainly been suggested that Apple faces a couple of major disadvantages in the electric car niche. Although it has an outstanding supply chain that would be the envy of any company on the planet, it has never manufactured anything on the scale of a motor vehicle, or for that matter even remotely close to it. Although it is valid to state that ultimately electric cars represent a collaboration of numerous parts of the size that Apple is accustomed to producing, the scale of production required for electric vehicles would still seem to be beyond the scope of the existing Apple supply chain.

Additionally, Apple will not be able to count on its exalted reputation in the electric car niche. There is no doubting the fact that that the Apple Car has already generated a significant amount of publicity, even though there is absolutely no product in place as of yet. The media interest in any Apple release is always massive, let alone one that would represent a huge departure from the company’s previous activity.

But the car market is a demanding trade, and one in which the critical community can be particularly brutal. Whereas Apple has built up huge expertise in producing consumer electronics devices such as the iPhone, and can rely on previous reputation when new variants of the smartphone series are released, this certainly will not apply to the electric car.

Virgin Apple

Apple will effectively be a virgin in this marketplace, and if the company fails to produce a product of sufficient quality, it certainly will not be able to rely as heavily on its branding to sell products to consumers. Motorists are notable for being extremely demanding with new vehicles, and probably also less loyal than smartphone purchasers. So Apple will have to produce something at least as good, and probably better, than the existing Tesla product range, if it is to compete directly with the electric car manufacturer.

Thus, it is perhaps not surprising that some analysts have questioned the validity of Apple’s plans in this department. This is such a huge diversification from the norm for Apple, and there is absolutely no doubt whatsoever that it will face massive challenges. With this in mind, Edison Investment Research analyst Rich Windsor predicts that one of the biggest problems Apple will face will be fiscal.

Apple has typically relied on a pretty large gross margin on its products, with some analysts and consumers critical of the company suggesting that Apple devices come at a premium for this reason. This would be much harder to achieve in the electric car niche, where Apple would not only be competing against established electric car manufacturers such as Tesla, but also the auto trade as a whole, with all the established diversity that this entails.

This would make it extremely difficult for Apple to achieve the sort of gross margin that it has become accustomed to, especially when one considers the massive number of components included in the average electric vehicle. Although manufacturing a gasoline-driven vehicle is complex, it is arguably even more complicated to produce an electric vehicle, as a larger diversity and quantity of parts are required, and the suppliers of these parts are smaller in number, and the expertise in much shorter supply.

Logistic Apple car problems

Return on investment for an Apple Car will almost certainly be margin dilutive, and Windsor consequently has serious concerns about return on investment with the venture. Apple is definitively a cash rich company, and this will assist with the massive project that an Apple Car certainly represents, but it does not guarantee success.

Apple also needs to engage in significant recruitment if it is to deliver the Apple Car concept. There has been a particular battle between Apple and Tesla for experienced staff in this area, and this seems likely to intensify as Apple looks to increase its electric car division in the coming years. It is believed that the company currently has a team of around 1,800 available to work on the Apple Car, and Windsor believes that this will ultimately be insufficient to deliver the project.

And that number is based on assumptions that Apple will triple its existing Apple Car team in the coming years. So there will clearly be a staffing pressure on the consumer electronics giant as it begins to work on the Apple Car concept, and analysts have pointed out that the existing CEO of Apple has thus far not been known for his particularly ambitious and visionary nature.

Tim Cook has unquestionably delivered massive profitability to Apple, and it would be extremely hard to describe his tenure as anything other than a success, but he has yet to demonstrate that he can play a major role in overseeing an entirely new Apple product niche, let alone one as unique as the Apple Car.

Apple is plowing forward with the Apple Car concept regardless. Reports this week suggested that the Apple Car could arrive as early as 2019. But the advantage that Tesla has in the marketplace, coupled with the outstanding vehicles that it already produces, suggest that Apple will have its work cut out to overtake the market leader, and certainly not rapidly. Apple may be accustomed to dominating any marketplace it enters, but the electric car market will be its most ambitious undertaking, arguably in its entire history.

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