Our favorite gadget maker is the world’s leader on technology you can carry– from Mac to iPhone to iPad to Watch– and now it wants a more elegant and modern way for us to carry our mobile devices.
Money Pit? Or, Fixer-upper?
Apple has a growing problem. It’s not Microsoft’s recent resurgence. It’s not Samsung’s illegal copying of Apple’s intellectual property. It’s not lawsuits, patent infringement, or even an exodus of valuable talent.
Apple’s biggest problem is the pile of cash it sits upon, now approaching $200-billion. Despite experienced executives and seasoned managers and probably more creative engineers this side of the Great Wall of Chine, Apple cannot figure out what to do with all the money.
Everything Apple does these days seems to turn into a big stack of cash. Apple engineers hated their smartphones, so they made the iPhone. Engineers recognized that the tablet industry sucked, and built the iPad. Those same employees collected fine watches, so created an electronic version that now sits atop the wearable technology industry.
Now Apple wants to build a car. Perhaps an electric car. Perhaps an electric self driving car. Perhaps. If the Apple TV was a hobby for many years, and it was (and may still be), then is Apple Car just another hobby to help the company keep already totally rich engineers focused on something so they don’t disband and go work at Google?
Maybe so, maybe not, but if all the rumors, hints, and hirings mean anything, Apple is headed for a car business. The question to ask is, “Why?” Mac, iPhone, iPad, are rapidly changing products which have notoriously low margins (they say the easy way to make a small fortune in the car business is to start with a large fortune) so it’s not like Apple would make much money. Nobody makes much money selling cars to the average person.
What about Tesla? Elon Musk’s new electric car company has, arguably, the best car money– lots of money– can buy. For $100,000 you get an ultra fast, amazing agile, and crazy economical ride which even Consumer Reports gushed over, calling it the best ever. Yet, after years of wowing customers and the entire auto industry, Tesla loses about $10,000 on every car that rolls off the factory floor.
If it’s so easy to make big money– the kind of money Apple is used to making on everything– in the automobile business why isn’t everybody doing it? Instead, one could ask, “Why bother?” It’s an industry riddled with failures and bankruptcy. It’s like the airline business but without wings.
There’s a great video interview with one of the great American car executives, Bob Lutz who has a long and storied career in the automobile industry. He’s a car guy of a special caliber, an executive who toiled away at Ford, Chrysler, and General Motors. Few executives in any industry have a resume as long and impressive as Bob Lutz, who knows the car industry inside and out, and upside down.
What does Bob Lutz say about Apple’s entry into the car business?
When it comes to actually making cars, there is no reason to assume that Apple, with no experience, will suddenly do a better job than General Motors, Ford, Volkswagen, Toyota, or Hyundai. So, I think this is going to be a gigantic money pit.
Remember what an experienced executive said about Apple’s expected entry into the smartphone business? Palm CEO Ed Colligan:
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.
Yet, that’s exactly what Apple did. The company’s iPhone changed the entire smartphone industry, one in which Apple owns over 90-percent of the profits.
Apple has an embarrassment of riches. They don’t know where to put the cash anymore. So, if they burn $30 or $40 billion in the car business, nobody’s going to notice.
The way Apple is followed by the tech industry, media critics, and market prognosticators, it’s safe to say that Lutz is wrong. Burning through $30-billion will be noticed. Just look at the noise from Apple’s $3-billion spent on Beats Music.
Lutz, one last time:
An electric car is, from a cost standpoint, the toughest way to go and, by the way, the electric car market is still miniscule. That just doesn’t make sense… One of the thing they probably hope to do with their electric vehicle is to sell the electric vehicle credits to other manufacturers who need them. And currently for Tesla, that is the only large sustainable source of revenue that Tesla has. I mean, they’re losing a ton of money on the cars. So maybe that’s the calculation, but, I’ll tell you what, if I were a board member of Apple, I would ask some serious questions about this whole thing.
Businesses take risks. Every auto manufacturer takes a risk with a new design that might have problems or be completely ignored by the buying public. Business is about risk. No pain, no gain. An Apple designed and built electric car might be a money pit, but if anyone has enough money to fill a very large pit, it’s Apple.