A vehicle still makes no sense at all.
- Apple is reportedly delaying the launch of its vehicle until 2026 and autonomy until later but I remain of the opinion that it has no intention of launching a car as it still makes no economic sense.
- Bloomberg is citing anonymous sources (see here) that Apple has decided to delay the launch of its vehicle until 2026 and that the 2026 vehicle will not come with autonomy.
- 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.
- I am not claiming that Apple is not building an electric vehicle (EV) but I do not think it will ever release it as a product for sale.
- This is because the economics are as nonsensical today as they were when the idea of Apple selling a car first surfaced over 5 years ago.
- 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 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.
- Apple has made many products that it never released such as televisions and this is a normal part of research and development activity.
- The biggest risk that Apple now faces is the time when a new device category replaces the smartphone 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.
- In a similar fashion autonomous driving makes no sense whatsoever for Apple.
- Taking over the infotainment unit, I can understand as this would give Apple access to the huge opportunity that I see in vehicle digital services.
- The only reason I can think of for Apple to offer autonomous driving would be so that users spend more time in vehicles engaged with the Apple ecosystem as opposed to driving.
- The problem with this idea is that Apple does not need to offer autonomous driving itself to achieve this reality as RFM research has long argued that there will be plenty of good enough off-shelf solutions by the time autonomy becomes a commercial reality.
- RFM has forecast that this will occur in 2028 for the last 6 years but I am starting to see risk to that estimate.
- Consequently, I continue to believe that Apple will never launch a vehicle for commercial purposes and that its experiments with autonomous driving remain half-hearted.
- The real risk that Apple really needs to address is the Metaverse as this has a chance, perhaps remote, of replacing the smartphone as the place where users live their digital lives.
- This is why Apple must address the Metaverse if for no other reason than as insurance just in case it turns out to be a smashing success requiring a strong offering from Apple to preserve the relevance of the iOS ecosystem.
- This is many years away in the best-case scenario which is why I also think that Apple will not launch a Metaverse device before 2025.
- In the meantime, the competitive landscape looks pretty clear but this remains more than priced into Apple’s shares which are by no measure a bargain.
- I would continue to look elsewhere.
