An Apple car?
Absolutely.
In mid-February, it was reported that Apple (AAPL) has been working on its own automobile. The fact that the car would be, like a Tesla (TSLA), electrically powered, only added to the surprise.
And added to the eye-rolling, if you’ve got doubts about this.
Skeptics’ case
As an investor, it’s easy to mount a case why Apple shouldn’t build a car.
1) It’s an example of Peter Lynch’s famous construction, ‘diworseification:’ expanding your business outside your core competency.
2) It’s not clear what competitive advantage an Apple car would have over existing vehicles, whether electric or not.
3) Automobile business is highly regulated in ways for which Apple has no experience.
4) The car business has exceptionally long cycles (typically four to seven years for a given model), too long perhaps for an innovator like Apple to upgrade its products on its usual one-year cycle.
Go for it
But I don’t think these reasons or others ought to prevent Apple from trying. As both a car buff and a tech investor, I’d love to see Apple give it a try. And it’s equally easy to make a case for Apple succeeding.
First, Apple has the money. Developing a car – really, a whole car company – is not cheap. It’s been reported that Tesla has spent roughly $1.5 billion in capital expenditure and operating costs to reach its current level of production. But Apple has $145 billion in cash, net of long-term debt. Enough said.
Second, the basic design idiom of a car has been unchanged for 100 years: four rubber wheels, one or more of which propel the vehicle; a steering wheel; pedals on the floor; side-by-side seating in one or more rows, etc.
There is plenty of room for a player like Apple, without any tradition, to offer game-changing ideas and make them real.
Beyond Detroit
Third, recent automotive innovation has largely been outside of the car’s primary function: transportation. Cars have been able to carry passengers down a highway at 60 to 70 mph for about sixty years now.
Almost every improvement since has been through either refinement – air vents becoming air conditioning becoming individualized climate control – or regulation.
And carmakers have fought tooth and nail against many of those regulated changes we now take for granted: Seat belts, head rests, third brake lights, emission controls, side impact standards and air bags.
All of these appeared on cars in the ‘60s, ‘70s and ‘80s because of government mandate, not as innovations brought about by the car industry.
Big Three
Back in the day, the American ‘Big Three’ automakers howled that these unsexy devices would only add to the cost of cars without making them in any way better or more appealing.
Those of us with either grey hair or long memories laugh a little when we see those same carmakers promoting their cars’ safety features like they’d invented them.
And of the few innovations that weren’t the result of regulatory imperative, many were simply borrowed from other fields.
Anti-lock brakes, for example, were developed first for airplanes. Apple’s innovative impulses are in their DNA. Who knows what they’d come up with?
Taste markers
Fourth, cars are aspirational, and often serve as taste markers for their owners. Apple has successfully cultivated that exact corporate image and done so in an industry (computing) heretofore known for strictly functional design.
Last and perhaps most importantly, cars are ‘things’ and the Internet of Things means car owners and users expect their vehicles to be connected.
And let’s face it: Apple and other smartphone vendors are far ahead of car makers in user interface design, so much so that many drivers utilize those devices for navigation and other functions instead of those that are built-in.
The computing business, like the auto industry, is decentralized and utilizes a huge, global supply chain. So Apple shouldn’t have any trouble managing a new supply chain for its automobile effort.
Cash horde
Moreover, over 90% of Apple’s vast cash hoard is outside the US, as are the many designers and suppliers it will need to pay. It will be able to do so without paying tax on repatriated US dollars.
So where’s the investment angle? Hard to say. In the early stages of car development, a lot of money gets spent but only investment bankers seem to make a profit: raising money from early-stage investors.
Have any Tesla suppliers hit it big? None that I’m aware of. Perhaps later in the process, once designs are firmed up and suppliers are chosen, some winners may emerge.
In 2014, Tesla built 35,000 cars, about as many Camrys as Toyota sells in a month. In America alone. For that achievement, Tesla has a market capitalization of $25 billion.
Why not?
Given Apple’s overall credibility and its specific achievement in defining or redefining products and markets, it’s not hard to imagine investors tacking on some additional value to Apple stock as its carmaking plans come into focus.
An Apple car?
iCan’t wait.
Photo Credit Mark Sebstastian via Flickr Creative Commons
