Apple Automotive – Tinker, tailor, soldier, car? Pt IV

Nonsensical notion takes another hit.

• The defection of Apple’s car chief, Doug Field, is being seen as a huge blow for Apple’s ambitions to make a vehicle but seeing as this was very unlikely to ever materialise, it is not particularly big news.
• Doug Field is moving to Ford where he will be responsible for advanced technology and embedded systems which tells one everything that one needs to know about what project Titan is and where it is going.
• I have argued for years that making a complete vehicle makes absolutely no sense for Apple and would cause huge problems with the company’s valuation if it went ahead.
• Apple is a company that earns high margins on high-end digital consumer electronics and its valuation in the stock market is priced accordingly.
• Apple’s gross margin on its devices is around 40% which is something it is never going to replicate in vehicles.
• Pressed steel, wheels, brake pads, and so on do not attract these levels of profitability because they are relatively commoditised meaning that an Apple vehicle that carries these margins will be far more expensive than competing products.
• So, if Apple were to sell a vehicle and do so successfully, the margins of the overall company would begin to erode and with it would go the valuation.
• This is exactly why Xiaomi (see here) may just succeed in selling vehicles because the margins it earns and to which the market has become accustomed are already very low.
• Hence, if it starts selling vehicles, there will be no margin dilution meaning that revenue growth from vehicles may help the shares increase in value.
• This is why I have long believed that Apple will never launch a vehicle of its own and given the recent turnover at Project Titan, even the bulls of this idea are again getting concerned.
• This raises the question: why is Apple dabbling in EVs and autonomous driving?
• I have long suspected that the reality here is that Apple is experimenting and tinkering with vehicles as part of its research into what comes after the iPhone and it is this tinkering that is being mistaken or exaggerated into rumours of a product launch.
• The biggest risk that Apple now faces is the day when a new device category replaces the iPhone because it is at this point that its giant legacy business may interfere with its ability to pivot which is exactly what happened to Nokia.
• The lead contender is augmented reality glasses but also there may be a ceding of digital interaction into vehicles as they become smarter, more useful and carry more and more digital services.
• Furthermore, I don’t think that Apple will get very far with either autonomous driving or battery technology as both of these are very far from its core competence and there are a host of better positioned and far more focused competitors.
• The fact that its former head of automotive will be in an advanced technology and embedded systems (read infotainment) role is an indicator of what he was really focused on at Apple.
• The implication here is that Project Titan is more focused on infotainment and was tinkering with vehicles in order to understand them better so that it can be ready for how the market develops and ensure that iPhone is part of it.
• I continue to believe that I think that automotive is irrelevant for Apple whose valuation is already significantly overstretched just like almost all of its FAANG peers.
• I still have no interest in owning any of them at the present moment.