Not quite.... Car companies earn very low margins (3-5%). The average price of a new vehicle in the US is $ 33,000, i.e., the operating costs are $31,500 per car. Given how competitive the car market is, it is not feasible that these operating costs can be lowered substantially (maybe some savings on marketing and distribution).
Apple has a 30%+ operating margin. In order for Apple to achieve this margin on cars, they would therefore have to increase the desirability of a $33,000 car so that people are willing to spend $ 45,000 on it; or since cars are already such an object of desire that one must assume that people already spend as much as they can afford, convince people that today are spending $ 45,000 on a car to accept a $ 33,000 build quality (the difference between a plastic Mazda interior and a proper Audi interior).
This is not impossible but very difficult (Tesla achieved some of this but at a minuscule scale).
It is very different from phones, just because a car is so much more expensive and elasticity of demand is therefore much lower.
Luxury car makers have better margins.
Or... Apple might be looking to disrupt the nascent car-as-a-service segment, which has the potential to become a very large slice of the future of personal transportation. This would imply Apple would build functional vehicles with stylish but durable interiors, keeping costs down. The cars would represent a recurring revenue service rather than a one-time sale, and the market is represented by every dense population center around the world. Apple needs only create a few centralized charging depots at strategic locations near a population center, then unleash a swarm of Apple cars to serve that geographic area. Tight integration with an iPhone and Watch app would allow users to request a car, indicating their destination, either for immediate pickup or future pickup, calculated to ensure arrival at a specified time. Toss in regularly scheduled pickups, like taking the kids to school daily, and Apple could optimize the utilization, driving revenues and profits. The possibilities to create a seemless car service are coming into focus, as is the technology. This is where I think Apple is going.
These are good ideas. I understand the car-as-a-service concept: electric, on demand, not luxurious but stylish. Benefits: fewer cars sitting around parked.
But there are two problems:
1. by reducing the costs of individual short-distance mobility, you actually end up with more road traffic (already happening in London). Would not increasing the cost of individual mobility (for example, a private parking space in London costs £ 800 per month but a parking permit to park on the street only about £ 300 per year!) coupled with a massive build-out of public transport be better for quality of life in population centres? And also reduce the number of parked cars?
2. The benefit of having a car is not for short distances in densely populated centres (we have public transport), but because the option of being able to take it for long trips is valuable. I don't have a car to go to the supermarket two blocks away, or to go to work 30 minutes by tube. I have a car to go away on weekends, or to visit my parents in the suburbs. How will that be addressed by small and cuddly Apple cars (renting ever weekend is not an option, as that ends up being a lot more expensive than owning a car due to the cost of the overheads - you can see this in the rental car fees, or the ZipCar weekend rates).
I fear that in the end, we will have even more cars: we own one for longer trips, which will sit around even more doing nothing as we take Ubers and autonomous cars around town instead of the tube.
"autos are a cut-throat business with low margins and intrenched competitors"
IOW, it's basically like every other business that Apple entered & everybody said Apple wouldn't enter.
Not quite.... Car companies earn very low margins (3-5%). The average price of a new vehicle in the US is $ 33,000, i.e., the operating costs are $31,500 per car. Given how competitive the car market is, it is not feasible that these operating costs can be lowered substantially (maybe some savings on marketing and distribution).
Apple has a 30%+ operating margin. In order for Apple to achieve this margin on cars, they would therefore have to increase the desirability of a $33,000 car so that people are willing to spend $ 45,000 on it; or since cars are already such an object of desire that one must assume that people already spend as much as they can afford, convince people that today are spending $ 45,000 on a car to accept a $ 33,000 build quality (the difference between a plastic Mazda interior and a proper Audi interior).
This is not impossible but very difficult (Tesla achieved some of this but at a minuscule scale).
It is very different from phones, just because a car is so much more expensive and elasticity of demand is therefore much lower.
The high end segment has margins from 10-18% (top is Porche); with cars being simplified to a consumer electronic device, margins could be a bit higher still in the future. Apple would hit Series 1-3 BMW level cars in pricing.
Interesting.. this is the largest-stakes new division that Apple has created.
The initial sets of EMVs had such restrictions that I could not take them seriously. Then Tesla started making them; I love those vehicles! Excellent range on a charge, looks great, excellent performance, forward-thinking design... But still, for long road trips, these remain impractical, at least for me. The Tesla recharging stations will eventually reduce some of the travel restrictions, but as of today, there are not enough on route that I drive to make these cars practical.
Apple will certainly address "milage" on a charge, charge-speed, etc. Tesla has been quite innovative, but I anticipate Apple will be more so. I'm very interested to see what Apple will come up with to make their car more attractive than Tesla. Since Apple tends to cash in on economy of scale, I'm hopeful that their car is far more affordable, but outperforms Tesla. Apple is a luxury brand, but targets mass marketing rather than niche sales.
There are so many variables... this will be interesting to watch unfold.
On a side note, I wonder if the division will be called Apple Cars, Apple Motors, or what? I very much doubt the individual car will be called the Apple Car. Or maybe it will be; the sedan is the Apple Car, the SUV/Crossover is called the Apple Car Plus.
It's doubtful that Apple wants to make a production electric car. It's more likely they want to control the Operating Systems of electric cars, but let GM/Ford/et al make the actual car. The OS will be the centerpiece for autodrive, power management, entertainment and climate control, etc. Apple wants their version of that OS running on electric cars.
Apple has never produced generic software that can run on generic hardware. The strength of Apple is that they integrate specific software and specific hardware. That is how they are able to get superior performance from average hardware.
Apple Car should be the first choice. Afterwards, they may just add Apple Car One, Apple Car Three, Apple Car Five etc. This Three may create a bit of confusion regarding Tesla Model III, unless Apple gobbles up Tesla Motors, which is not to be disregarded. The other track they could take would be choosing stellar names like Apple Archer, Apple Orion, Apple Sagis etc, but this as well might provoke some confusion regarding GM Orion plant, unless Apple is poised to gobble up GM as well. Anyhow, I believe Apple Car stays, and extensions will be decided on smwh down the road.
Not quite.... Car companies earn very low margins (3-5%). The average price of a new vehicle in the US is $ 33,000, i.e., the operating costs are $31,500 per car. Given how competitive the car market is, it is not feasible that these operating costs can be lowered substantially (maybe some savings on marketing and distribution).
Apple has a 30%+ operating margin. In order for Apple to achieve this margin on cars, they would therefore have to increase the desirability of a $33,000 car so that people are willing to spend $ 45,000 on it; or since cars are already such an object of desire that one must assume that people already spend as much as they can afford, convince people that today are spending $ 45,000 on a car to accept a $ 33,000 build quality (the difference between a plastic Mazda interior and a proper Audi interior).
This is not impossible but very difficult (Tesla achieved some of this but at a minuscule scale).
It is very different from phones, just because a car is so much more expensive and elasticity of demand is therefore much lower.
The high end segment has margins from 10-18% (top is Porche); with cars being simplified to a consumer electronic device, margins could be a bit higher still in the future. Apple would hit Series 1-3 BMW level cars in pricing.
OK, with margins of 10% (max for BMW 3 series), Apple would have to be able to increase desirability without increasing costs, or lower costs by 20% . As mentioned, it is hard to imagine that Apple could achieve lower costs than any of the existing car manufacturers at each level of quality. Tesla did manage to convince 100,000 people to spend more than what the build quality/interior would usually command, but this is such a tiny number it is really irrelevant.
And unlike the phone market, where a monthly contract went from 0.5% of the median monthly net wage (for a Nokia) to 1.2% for an iPhone, a 20% increase in car costs would mean an increase from 13% to 16%. At these levels, each % starts to hurt. And lets face it, even the tiny 3-series is aspirational for most people...
I have no doubt Apple *could* enter the car market (of course they can, they have tons of cash), but would they *want* to? Can't imagine that, as the industry is just not attractive enough..
Mr Musk could be right that the ACar will not threaten the model S/X/T. Apple makes products that are way too expensive, so ACar will have only a very small percentage of the market, it will only be for the uber rich.
If an Apple Car Edition ever appeared, I'd roll my eyes. Even on the Apple Watch the descriptor "Edition" is quite awkward. Apple really needs someone with Steve Jobs' touch for product naming.
Would you say that what Apple achieved with the iPhone was easy?
What does ease or difficulty have to do with it, for a company with the resources, the talent, and the incredible record of past success like Apple?
Maybe, but I was responding to someone specifically talking about referring to the project as difficult. Difficult is still difficult whether you have 5 engineers or 5000. And then there's the mythical man-hour, and cliches like too many cooks, etc...
Apple are well-positioned, no doubt, better positioned than any other, arguably, but anyone who thinks success is assured is delusional.
I am still not convinced that Apple will introduce their own branded auto. Similar to consumer electronics, autos are a cut-throat business with low margins and intrenched competitors. Apple would have to introduce something truly disruptive given the enormity of the challenge. Hope I am wrong, but my sense is that they are working on something 'auto-related' as opposed to a full-blown production auto...
I am still not convinced that Apple will introduce their own branded auto. Similar to consumer electronics, autos are a cut-throat business with low margins and intrenched competitors. Apple would have to introduce something truly disruptive given the enormity of the challenge. Hope I am wrong, but my sense is that they are working on something 'auto-related' as opposed to a full-blown production auto...
Phones were cut-throat also...
N There were only cheap and cheaper. No premium phone existed. That is different in cars, so any provider is a price taker in any given segment, even in the "luxury" segment but certainly in the affordable luxury segment (BMW 3 series, Mercedes C class). So Apple would have to be able to offer a lower build quality and charge same as these cars cost today; or get this segment to spend even more than they do today (which no one know if they will, because if they could spend more, they would).
That was different for phones, because only the equivalent of a Volkswagen Golf was available.
Comments
But there are two problems:
1. by reducing the costs of individual short-distance mobility, you actually end up with more road traffic (already happening in London). Would not increasing the cost of individual mobility (for example, a private parking space in London costs £ 800 per month but a parking permit to park on the street only about £ 300 per year!) coupled with a massive build-out of public transport be better for quality of life in population centres? And also reduce the number of parked cars?
2. The benefit of having a car is not for short distances in densely populated centres (we have public transport), but because the option of being able to take it for long trips is valuable. I don't have a car to go to the supermarket two blocks away, or to go to work 30 minutes by tube. I have a car to go away on weekends, or to visit my parents in the suburbs. How will that be addressed by small and cuddly Apple cars (renting ever weekend is not an option, as that ends up being a lot more expensive than owning a car due to the cost of the overheads - you can see this in the rental car fees, or the ZipCar weekend rates).
I fear that in the end, we will have even more cars: we own one for longer trips, which will sit around even more doing nothing as we take Ubers and autonomous cars around town instead of the tube.
Apple would hit Series 1-3 BMW level cars in pricing.
Apple Car sounds great.
And unlike the phone market, where a monthly contract went from 0.5% of the median monthly net wage (for a Nokia) to 1.2% for an iPhone, a 20% increase in car costs would mean an increase from 13% to 16%. At these levels, each % starts to hurt. And lets face it, even the tiny 3-series is aspirational for most people...
I have no doubt Apple *could* enter the car market (of course they can, they have tons of cash), but would they *want* to? Can't imagine that, as the industry is just not attractive enough..
Apple makes products that are way too expensive, so ACar will have only a very small percentage of the market, it will only be for the uber rich.
Apple are well-positioned, no doubt, better positioned than any other, arguably, but anyone who thinks success is assured is delusional.
That is different in cars, so any provider is a price taker in any given segment, even in the "luxury" segment but certainly in the affordable luxury segment (BMW 3 series, Mercedes C class). So Apple would have to be able to offer a lower build quality and charge same as these cars cost today; or get this segment to spend even more than they do today (which no one know if they will, because if they could spend more, they would).
That was different for phones, because only the equivalent of a Volkswagen Golf was available.