Apple – Silly season.

Not everyone at Tesla does cars.

• Apple is recruiting people from Tesla again which I think has nothing to do with cars and everything to do with augmented reality.
• Commentators are jumping on the recruitment of Andrew Kim from Tesla as a sign that Apple is once again trying to build an automobile as a way of growing its revenues into a new segment.
• There is clearly a shortage of news out there due to the end of the year.
• This is because this notion makes no more sense now than it did in 2015 when everyone got excited about Apple in the automotive industry.
• The fundamental problem with the automotive industry is that companies do not really make money by selling cars.
• Instead, they make more on financing and after sales services such as extended warranties and service contracts.
• Furthermore, it is a highly regulated industry and one where the user purchase decision is driven by brand, performance and form factor.
• This is where the problems will begin should Apple enter the automotive industry.
• Apple doesn’t know anything about engines, brakes, wheels or aerodynamics and it is very unlikely to be able to become an expert in these areas any time soon.
• Apple prides itself on earning 40% gross margins on the products that it sells and unless it can earn 40% gross margins on wheels, brakes and sheet metal, an automobile will be significantly margin dilutive.
• I think that this would be catastrophic for the valuation of the company as the main pillar of Apple’s valuation is its fantastic profitability.
• Furthermore, Apple’s valuation is still substantially higher now than it was in 2015 and so I think it very possible that falling margins would have a greater effect on the valuation now than they would have done in 2015.
• Andrew Kim’s CV also includes some time at Microsoft, some of which was spent on HoloLens.
• Microsoft may be making a mess of, but its HoloLens is considered to be one of the better offerings available today both in terms of technology and utility.
• Having given up on automotive (with the exception of autonomous driving which also makes no sense at all), Apple has all but admitted that it has turned its hand to augmented reality (AR).
• I think that this technology has a future, but there are some very large technical hurdles to be overcome, none of which are within Apple’s realm of historic excellence.
• Hence, it will need to acquire a lot of talent if it is to catch up and surpass Microsoft and Magic Leap.
• I am sure that this is what Andrew Kim’s recruitment is all about rather than a sudden desire to return to an idea that never made any sense.
• AR requires lots of money, and in that regard, Apple could be a contender especially if it snaps up the smaller companies that are beginning to fold under the financial pressure (see here).