By on April 14, 2016

Apple Logo, Image: John Mitchell/Flickr

In social situations, general convention holds that, unless you want to incite a riot, certain topics remain off-limits: politics, religion, and — increasingly — one’s choice of technology. Vocal cords have been inflamed and dinners have been ripped asunder with invectives hurled at Android or epithets tossed towards Apple.

Bob Lutz is on record opining that Apple’s efforts in developing a car are “going to be a gigantic money pit” — and he’s probably right.

Here’s the thing though: Apple has a history of figuring out how to make big profits with products traditionally considered to be low margin. Add this to the fact that Apple is rich enough to spend huge bucks on developing a car, only to drop it all and walk away if they’re unhappy with the project.

Think they won’t?

Years ago, rumours abounded of an HDTV from Apple. Not the hockey puck of a device we know as Apple TV today, but an actual flat screen you could hang on your wall. After months of development, Apple scrapped the whole thing because it couldn’t come up with a product differentiated enough from its competitors that’d justify a sticker price high enough to generate Apple’s legendary profit margins.

Now, it’s a big leap from a flat-screen TV to a four-wheeled iCar that’ll ply public roads. However, and this is critical to understand, Apple’s high-margin/differentiated-product corporate goals will remain, no matter if we’re talking about a phone or a car.

This is not to say that Apple is in the business of throwing money away. Far from it, in fact. But they are in the business of disrupting conventional markets. The telephone’s been around for a hundred years. Apple showed up in 2007, transforming the phone into a social and career hub, to the point many people need the glass and metal iDevices surgically removed from their hands upon death.

The past is rife with examples of Traditional Big Guns underestimating on-the-horizon competition. The newcomers appear, offer a fresh take to a thirsty public, and leave the Big Guns scrambling in their wake. Apple has a history of entering a market, making its competitors look old-fashioned, and proceeding to take a huge piece of the pie while leaving the traditional competitors scrambling for the remaining crumbs.

How many readers are viewing this on a PalmPilot? BlackBerry? Compaq Presario? Exactly.

Look at Tesla. Elon Musk, who has a background in facilitating electronic payments and being a Bond villain, just raised in excess of $300,000,000 virtually overnight in (admittedly refundable) down payments on a car the public hasn’t even sat in yet, let alone driven. Cook & Co. undoubtedly watched this activity very closely, likely seeing it as an affirmation they should plow on, for now, with Project Titan.

Apple fanatics tend to form lineups long enough to challenge the ones seen during Siberian rationing, so its logical to think any vehicle bearing the Apple logo will grab formidable market share.

I don’t know if Apple will ever build a car. What I do know is if they do, you’ll probably pay a premium if you want one in Rose Gold … and you better not talk about it at the dinner table.

[Image: John Mitchell/Flickr]

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40 Comments on “Slices of Apple...”


  • avatar
    Eyeflyistheeye

    Lutz is right that developing a car is a money pit. Also, it’s not a stretch to see a company that makes computers develop a phone or an HDTV, but them developing a car would be a whole different ordeal. Do they partner with an existing manufacturer? Are they going to build ICEs, EVs or hybrids? And the kicker: If Apple wants to build a car on their own, they have to construct a factory, get suppliers that demand a certain number of XYZ to be purchased at $n for x years and hire a workforce. Unlike an HDTV where they can just say no to Foxconn, they’ll be tied up in a commitment one way or the other.

  • avatar
    laserwizard

    You can’t just an Apple by what Heir Yutz says. He is a documented liar and resume padder and responsibility deflecting jerk.

    Apple sucks, but it isn’t for any reason that Heir Yutz could contrive.

  • avatar
    Kyree S. Williams

    That’s a good response to the comment I just made on the previous “Apple Car” article…which questioned why a company like Apple would disrupt its high-profit portfolio to chase something as fruitless as making its own car.

    So I think we’re on the same page. I’d modify my comment to say that unless Apple can come up with something truly disruptive and—and this is important—high-profit…I doubt it will happen at all. And the profit margins are conventionally slim for automakers, so that’s a tall order. But if and when something with four wheels emerges from Cupertino, it won’t be just another luxury vehicle.

    • 0 avatar
      derekson

      If Apple makes a car they will almost certainly do it with a unique business model, the same way they changed the music industry with the iTunes business model, etc. That’s the only possible way that it could get margins to justify the capital expenditure.

      I can’t even begin to guess what kind of business model they’d be planning though. Maybe a subscription service with a car that can self drive up to your address at the designated time you need it?

    • 0 avatar

      Indeed, the thing to keep in mind about Apple’s success is that the primary product isn’t where the money is. That’s in the use, the apps, the environment you buy into. The other thing is the transformative experience – think iPhone vs. older Motorola phone. That can be the primary disruption that will make even Tesla appear outdated.

      With a (probably) electric vehicle, imagine an Apple branded charging station at every intersection where you currently see gas stations. If they solve the quick charge hurdle, imagine using your iTunes account or Apple Pay to pay a charging fee.

      They do have the money to build such an infrastructure more rapidly, a differentiator from Tesla.

  • avatar
    kefkafloyd

    “Compaq Presario?”

    Nerd time, but if you wanted to be consistent with handheld technology, Compaq’s handhelds were iPaqs. They also absorbed the HP Jornada. The Presario name did soldier on until HP finally retired the Compaq brand in 2013. Odds are that there are still many readers of this site using Presario branded computers. :V

    Me, I was a Casio Cassiopeia guy. Had the best TFT, best expandability, and best button array, at the cost of looking like a brick. Oh, and the screen was worthless outdoors, but inside? That color gamut couldn’t be beat.

  • avatar

    It’s a terrible idea.

    Apple should stay exactly where they are.

    • 0 avatar
      Yesac13

      MONTHLY LEASE INSURANCE & EVERYTHING INCLUDED. $599 a month.

      It’ll be an electric SUV. The more I think on it, I’m sure on this.

      Think about the phones – you pay $300 something or less and then pay $99 a month something for 3 years. Apple gets some of that per month and AT&T/Verizon/etc gets something. With the iAuto, Apple gets monthly vig, ditto for insurance companies and states (for the state taxes).

  • avatar
    DeadWeight

    Large CAPEX demands will nearly assure that Apple will never be a manufacturer of motor vehicles.

    They’re studying Tesla (on its inevitable path the failure) as a means to strip profits out of manufacturers of actual vehicles (i.e. Carplay) without having to build massively expensive factories and hire legions of new workers.

    Even with traditional Apple electronic & computing devices, Apple did design, and their sweatshop FoxConn Chinese factories did the building.

    • 0 avatar
      orenwolf

      “why the narrow-minded…oh, it’s DeadWeight”.

      I’m not sure why large CAPEX demands would be an issue for Apple. They invested significant amounts of money in third-party vendors in the past, sometimes on a massive scale.

      I appreciate your prophecies on Tesla. I’ll wager that should they not come to pass, you will promptly post a mea culpa rather than trying to shoehorn some small aspect into “proof” that you were right all those years ago, Nostradamus-style.

      Now, some substance to counter your unsupported claims:

      Tim Cook recently noted[1] that one of the reasons they do manufacturing overseas is that the capacity, experience, and skill of volume electronic component manufacture no longer exists in the USA. They *are* producing their top-of-the-line, lower-volume Mac Pro in the US. To do this, they had to essentially fund the factory and training necessary to do so. This resulted in major delays for the product, but by all accounts it is a beautiful product they create there.

      Analysis of their apple watch production methods[2] shows a level of attention to detail unmatched in metallurgy and production today. The iMac uses friction-stir welding to connect the faceplate to the rear shell – a technique used almost exclusively by shipbuilders (and certainly not car manufacturers) before they started using it, all because *they didn’t want a seam*.

      Literally design drives production. They’ve had no qualms inventing, enabling, or scaling up production techniques to make that happen. Their chip designs are literally the most powerful and power-efficient components available for mobile devices today.

      Now, unlike electronic component manufacture, there *is* significant skill, capacity, and scale available for vehicle manufacture in the US. The same limitations don’t apply, and I don’t see why they would not take advantage of this fact, *if* they indeed intend to go down this route and make a car. If they do, I expect them to use production methods driven by design, not by what’s been done before.

      Mainly because, only they can. Who else has the capital hanging around to do that level of R&D?

      I also expect a strong second-mover advantage: If apple DOES change the nature of vehicle manufacture, these new production methods will rapidly be adopted by other manufacturers, at a lower cost. That fact alone may doom any new Apple car to boutique status, depending on how long it takes them to play catchup.

      [1] http://www.cbsnews.com/news/60-minutes-apple-tim-cook-charlie-rose/
      [2] http://gizmodo.com/the-crazy-metallurgy-apple-is-using-to-sell-its-watch-1690388081

      • 0 avatar
        DeadWeight

        This is really simple.

        Manufacturing motor vehicles is a hugely expensive, low-margin activity.

        That type of business model does not now & almost certainly never will, fit into Apple’s business model.

        Even in consumer electronics, where the margins are many, many times greater (up to 100x greater, depending on device) than margins on automobiles, Apple chose a supply-contract company in China to actually manufacture its licensed devices, with Apple doing design work and supplying the operating systems and making most of its many off of the content it sells on Apple’s proprietary content platforms (e.g. iTunes).

        • 0 avatar
          JustPassinThru

          This is so right.

          The motorcar industry is SO heavily regulated, and requiring so much expensive equipment into the package…that the price of delivery, even with economies of scale, push at the limit of buyer tolerance.

          Low profit. Little room for innovation, at least of the kind that’s immediately apparent. Safety restraints, emissions laws, motor fuels, height of the hood in EU nations…legal demands regarding warranty; crash specs…there is SO LITTLE room for creativity within those specs, so LITTLE room to cut costs or present a different package…there’s not much for the Apple Skunk Works to run with.

          We’ll never see another Corvair; and I would be astounded if Apple tries to make a car. If they do it will be a financial failure and a drain of talent and resources.

      • 0 avatar
        anomaly149

        The auto industry is spending boatloads of money on new manufacturing techniques. Friction-stir welding is neat (and used on small auto components), but when you have a (not that unique) body shop that can run with structural adhesive, laser beam welding, self-piercing rivets, traditional welding, and friction-flow tapping and screwing (and more!) at a rate of ~400,000 vehicles per year (what up DTP?), you’re not hurting for joining methods. (and let’s not even get into the crazy mixed-metals joining GM is investing in right now)

        Apple is not likely to provide new fundamental production methods, because these new production methods are already under intensive development and deployment across the industry. (OEMs and suppliers)

        • 0 avatar
          orenwolf

          So here’s the thing.

          DeadWeight says “No margins! No way there’s anything unique to develop because there’s no money to be spent”. Anomaly says MASSIVE R&D spending on production techniques, literally what Apple has been all about since their iphone era.

          If you looked at the smartphone industry today, Nearly everyone is making nearly no profit, except apple, with, most recently, 91% of the smartphone profits in 2015. If you asked any of the other companies except samsung, they would tell you: “Smartphones are a low-margin business!!”, Samsung would tell you they’re average.

          When apple broke into the market, blackberry famously said:

          “We’ve learned and struggled for a few years here figuring out how to make a decent phone,” he said. “PC guys are not going to just figure this out. They’re not going to just walk in.”

          But they did exactly that.

          When the apple watch came out, watch makers said they’d never understand the culture and design of a truly great timepiece. But the build quality and design of the Apple watch has been near-universally acclaimed as a great piece of metallurgy, design, and production. Because design drives the production, not the other way around.

          I firmly believe that design-driven decisions allow them to have this level of disruption. Will it be priced accordingly? I bet not. I fully expect if such a product as an apple car were ever to come to pass, people will 1) say it’s too expensive, 2) say that the innovations on the surface aren’t revolutionary, and 3) deride anyone who’d think of buying it.

          But what I don’t expect, is for Apple not to think through literally every detail of both design and production in their products. Their goal is to have the #1 product in every category. And they do, they sell the #1 highest selling smartphone, laptop, desktop. They are well on their way in the smartwatch category with it just a year out. *if* they do a car, that will be their goal. It’s why I personally think it won’t happen, because #1 selling model is about economy, and that isn’t what their products are. But we’ll see.

          • 0 avatar
            anomaly149

            The Apple Watch isn’t really a success story.

            Apple’s biggest hurdle then, by your logic, is that the automotive industry is intensely design driven already. Designers touch every part you see to make sure it meets some minimum standard. (yes, even the Prius) There’s nothing like Palm or Lenovo where it’s a few engineers building a box that does things. No, skinny jean types have to pass off on every single detail in the cup holder, for crying out loud.

            The auto industry is full of big kids.

  • avatar
    seth1065

    I see apple wanting to own the inside of the car al a apple play in dash system, they could buy any number of car companies if they wanted a whole car company.

    • 0 avatar
      derekson

      This is possible but I’m not sure OEMs would really partner with Apple on this. They’d be giving away a large source of easy profits on their products.

      Plus after seeing Apple take huge swaths of the profits in multiple industries, other companies seem hesitant to partner with them in new markets. See Apple’s issues getting a streaming video system launched, since TV networks and studios don’t want to lose profits to Apple like record labels did after iTunes and the iPod destroyed the CD market.

  • avatar
    Yesac13

    I think the iPhone itself will hint a bit on the iAuto.

    Apple found a way to make people pay for the iPhone plus the phone service itself combined in one payment. Basically, pay $300 or $500 up front then pay $79 or $99 something per month for 3 years. That way Apple also gets monthly payments plus AT&T (later Verizon and others) got their vig per month.

    I suspect… Apple LEASES an electric SUV to the masses for $499 maybe $599 a month. This INCLUDES insurance and all applicable fees. ALL OF IT. New tires probably extra, tho. That does mean the price per month does vary on your location and your credit score but that is already true for everybody – just not seen in the monthly payments.

    Think about it. Simple. Its a pain to keep up with insurance and the fees. Let Apple take care of it. Put in the time into something that you make money on. There are too much stuff to keep up with. Insurance companies and states get their monthly vig. What’s not to like? Apple can write off depreciation unlike personal car owners (businesses excepted) so prices may be more competitive than you realize.

    It’ll be an electric SUV, probably, and it probably will have self driving ablities.

    Apple knows electrics very well. They will do an electric SUV well – probably will subcontract building of the SUV itself. They already subcontract the iPhone, essentially. They will not touch ICE technologies, it’s not up their alley. So an electric SUV is a definite.

  • avatar
    carlisimo

    I assume Apple’s counting on the established car manufacturers botching the transition to self-driving cars. If true, it’s a big opportunity.

  • avatar
    Ryoku75

    Given how Apple treats its assembly workers, I’d hate to see how things would go with their car. Be prepared for integrated parts, batteries, things that only Apple can replace too.

    An Apple-mobile would be the anti car guy car, so it would probably sell very well regardless of how many factory workers were sacrificed to assemble its button-free interior.

  • avatar
    A09

    I can see Apple hiring Magna Steyr or an equivalent to take on the capital burden of final assembly.

  • avatar
    don1967

    This could steal a major chunk of market share away from the Toyota Matrix in the age 25-45 elementary school teacher segment. Of course, a lot will depend on where they set the price of iGas.

  • avatar
    LeMansteve

    I think if Apple actually releases some form of automotive thing, it will be more of a service-oriented product.

  • avatar
    manu06

    I’d venture Apple is working on the propulsion system with plans to license it to other manufacturers.

  • avatar

    Someday in the not distant future, when Apple is more established as a Traditional Big Gun, someone will come along and disrupt their business model too.

  • avatar
    Pch101

    I’m willing to bet that Apple will get in the car infotainment/interiors business. Building the entire car is a high-cost, low-margin exercise, but consumers would probably be suckers for an iAuto-whatever option package, while automakers would probably pay Apple generously for the chance to offer it. Limiting its focus would help Apple to maintain its high margins.

  • avatar
    kurkosdr

    What if Apple is not developing a car, but something car manufacturers will put in their cars? Or some kind of new power-train car manufacturers will put in their cars? Just like the original iPhone was something for AT&T…

  • avatar
    seanx37

    If Apple really wants to build cars, couldn’t they just buy ALL of the car manufacturers? Except maybe Toyota. They have the cash laying around to buy most of the planet

  • avatar

    Apple Lisa. Macintosh Portable. PowerBook Duo. Macintosh Performa. Apple USB Mouse. Power Mac G4 Cube. The AIM alliance. Pippen. eWorld. Boy, these people know how to dig a hole and fill it full of money. Then set the hole on fire.

    An Apple car? Sure. Why not? It’s only money. The money is rotting on overseas banks. Bring it home? Oh hell no. Dig a new hole. Drop a car in it this time.

    I’m all for it. Any company that spends a lot of money to compete with Microsoft Bob… A car. Sure. Drive that sucker in Apple eWorld.

  • avatar
    anomaly149

    Are they doing automotive work? Definitely, they’re headhunting Detroit way too hard to not be waist deep in automotive engineering.

    Is it a good idea? Silicon Valley really likes to get a bunch of programmers together and tell a legacy industry how they should be doing something. Sometimes this works, sometimes they find out a legacy industry has had some time (>100 years) to think a few things through.

    All I know is, I don’t want to be anywhere near the first recall. (Or the homologation process, that will be a freaking disaster on its own)

  • avatar
    mattmers

    Another writer overstepping their understanding of technology. This is a automotive site, not a tech site.

    The TV was when the Steve Jobs was in charge, now its Tim Cook. They have released the Apple Watch which no one knows what to do with and what future it has but they are certainly charging a premium.

    You ask “How many readers are viewing this on a PalmPilot? BlackBerry? Compaq Presario? Exactly.” but clearly you view BB as an old technology but they still makes phones and the most recent was an Android phone. I actually just switch from a BB z10 which I read this site on all the time.

  • avatar
    WheelMcCoy

    Hmmm… I’d drive an Apple Kart. And it will have built-in Apple Pay so I can go thru tunnels and over bridges without an ugly transponder tag. If it’s a hybrid and needs gas, I can drive to a gas station and fill up without swiping a card. And if I’m hungry, I can fill up at a drive-thru without swiping a card.

    If drive in movies make a come back, I’d probably have an awesome media experience.

  • avatar
    b1daly

    To the extent that Apple is interested in cars, it is to protect their profitable product lines. They are dependent on platform lock-in and it’s conceptual cousin, network effects, to maintain their market position.They have many loss-leader products (all of their software for example).

    I think people underestimate the importance of this when they dismiss Mac profits as being to small too care about. Network effects lead to emergent phenomena, and it’s hard to predict when a crucial tipping point has been reached.

    If for nothing else, there arch enemy Google has actually developed autonomous driving vehicles!

    The battle to control the connections to and in the car is going to be increasingly fierce.

  • avatar
    Wally8

    I think people miss the point of Apple. They’re not going to sell a car. They’re going to sell a cohesive transportation solution experience.

    Apple isn’t just about the product. It’s an ecosystem. A platform as the industry calls it.

  • avatar
    thegamper

    Personally I think it is a great idea. Not because I think Apple would make spectacular cars, but because I think there are plenty of people willing to pay spectacular money to own/drive one. Look at what Elon Musk has done with Tesla, I have to believe if he can start a car company with incredible fanfare and built in customer base, so can Apple, probably with better results to be honest.

    We all know that companies like Mercedes, BMW, etc. can sell on brand alone for a premium. As such, it is a license to print money. An Apple car would be much the same in my opinion. It would be a real threat to Mercedes, BMW, Audi…all the companies that that cater to high end shoppers who only care about image really (not to say that’s every Merc, BMW, and Audi customer…but a lot of them). If an Apple car turns more heads and starts more conversations than BMW, well…..unless you are a die hard enthusiast for German cars, you probably go for an Apple car if you are buying for image like most luxury car shoppers.

    Would love to see it happen, even though personally, I would only buy a Google Nexus car on principle :)

  • avatar
    Fred

    If I have to register my Apple car with Itunes I will never have one.

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