Industry insiders are absolutely positive that Apple has no business entering the smartphone smartwatch car industry — with former GM Vice Chairman Bob Lutz telling CNBC that an Apple Car has the potential to be a, “gigantic money pit.”
Yep, we agree Lutz — an autonomous Apple Car has the potential to make loads of money for Apple.
Oh wait, you mean the bad kind of money pit?
“Apple has no experience,” Lutz said. “There’s no reason to assume Apple will do a better job than General Motors, Ford, Volkswagen, Toyota or Hyundai.”
The reason Lutz thinks Apple is going to struggle is due to the fact that the automotive industry is a low-margin business, compared to the markets Apple currently operates in.
“You can’t show me one company in the world that, to date, has made one nickel from electric cars,” he continued. “They are generally money-losers … There is absolutely no reason to assume that Apple is going to be financially successful in the electric car business.”
Lutz’s opinion might be reminiscent of the same comments suggesting that Apple could never build a good smartphone, but it’s far from a marginal view in the car industry.
Speaking at last week’s Frankfurt International Motor Show, Dieter Zetsche, chief executive of Daimler — the company which builds Mercedes vehicles — said that he had no plans for his company to “become the Foxconn of Apple” by helping Apple make vehicles.
Former GM CEO Dan Akerson has also said that, “If I were an Apple shareholder, I wouldn’t be very happy [at the prospect of an Apple Car.] I would be highly suspect of the long-term prospect of getting into a low-margin, heavy-manufacturing.”
On the more positive money pit front, Piper Jaffray analyst Gene Munster has claimed that even a “moderate success” for the Apple Car could add an extra $50 billion per year in Apple revenues — or 23 percent on top of what the company currently makes per year.
Source: Yahoo
Luke Dormehl is a U.K.-based journalist and author, with a background working in documentary film for Channel 4 and the BBC. He is the author of The Apple Revolution and The Formula: How Algorithms Solve All Our Problems … and Create More, both published by Penguin/Random House. His tech writing has also appeared in Wired, Fast Company, Techmeme and other publications.
26 responses to “GM exec calls Apple Car a ‘gigantic money pit’”
Well, GM should know money pits…but hey, it’s OK if you have the US Gov’t to bail you out…Apple doesn’t need that.
They paid most of it back. In fact, the only money lost was the loss on lower performance expectations of the stock the gub’mint got.
but GM never paid it back in full.. that is the point. Plus they will ask for it over and over again.. its in their nature.
at least GM paid the Government back. GM needed to retool and that costs money and if they didn’t get a loan, it would have caused a lot more havoc if they went out of business as it would have had a domino effect with all of their suppliers, and surrounding businesses.
If Apple does release a car I certainly hope they don’t blow it, one bad recall can destroy a brand. Heck, even the major car mfg have had their set of problems to overcome. It’s not just producing a decent car, it’s about distribution, repair, and constantly coming up with a winning design that’s successful.
There is going to be a lot of competition and they are going to need to do a lot to get enough people to buy their cars in a consistent manner. It’s definitely a different industry than what they are used to.
The GM fellow makes a good point, the car industry is a very different animal (all obvious reasons aside). It is also interesting to note that, ‘on the positive […] front,’ the analyst talks about revenue, not profit.
That’s true, but I think there’s a lot that is going to be different about tech companies like Apple and Google entering the automotive industries. It’s obviously too soon to tell, but car companies are making money purely based on the hardware they sell you. Companies like Google and Apple have other sources of money they can make: whether it’s gathering data from you and giving additional time to sell ads/have their services used like Google, or the market opportunity for Apple tying customers further into the Apple ecosystem. It’s not just about the margins involved with the vehicles themselves. Ultimately, I’m just skeptical of experts in disruptable industries saying that Apple won’t be successful. We saw that with music and iTunes, smartphones and the iPhone, watches and Apple Watch, etc. The automotive industry is going to shift enormously over the next few years, and a company like Apple’s not going to go into this blindly.
The most complex, most expensive piece of technology in a traditional car is the internal combustion engine. When people talk about the high cost of entry in the auto industry, the ICE is what they’re really talking about. Billions of dollars of investment are required to eke out the incremental improvements in fuel efficiency and emissions control that are needed to keep up with regulation and the competition. If you have a viable replacement for the ICE, you can acquire the tech for the rest of the car by hiring the right people and working with the right component suppliers. And if you have expertise in digital platforms and ecosystems. them you have a competitive advantage over the incumbent auto companies.
You think Apple would produce a combustible engine car? Nope. The fact is that electric car mechanics will be computer engineers not traditional mechanics.
“The GM fellow makes a good point,”
No, he doesn’t. He simply doesn’t wish to have another competitor to worry about, especially one with $200 billion dollars lying around.
Lutz makes excellent points.
Before people go around questioning Lutz because he was with GM before should think again. He has spent his whole life in the car business and was not the cause to GM’s problems.
There are so many issues with Apple entering the car business if they are going to enter like say Tesla selling direct to consumer.
First, there are laws protecting the franchise business model currently in place. Tesla has won some battles but Apple will face some of their own. The difference here is Apple has the cash to fight the laws.
Also, how is Apple going to service and support these vehicles? They require a whole new level of service and support vs mobile devices.
Who will make the vehicles? Apple doesn’t even manufacturer their current line of devices which would be so much simpler than manufacturing a car. I wouldn’t count on a current OEM to help Apple out by manufacturing their vehicles for them.
At this point I think Apple would be better off buying Tesla than starting their own car business.
I think Google has the right approach. As much as I do enjoy Apple products (that they currently offer) I think that the approach they appear to be taking in automotive is wrong.
Lutz is an automotive industry dinosaur whose thinking is basically stuck in the muscle car era. The rising generation of car customers will not be buying cars because it’s the centerpiece of their consumer life, they’ll be buying cars as an extension of their digital life. Lutz does not, and will never ever understand that new customer.
They don’t care about cubic inches, suspension geometry, or brake lining materials; a lot of them might even have no idea what those mean. They won’t mourn the demise of the ICE, and without the ICE, the engineering complexity of cars go way, way down. The rise of electric cars renders the incumbent auto companies competitive advantage (namely, the accumulated institutional knowledge on ICEs) practically worthless.
You clearly don’t know much about Lutz outside of some blog headlines. You also failed to listen to what he said or comprehend it.
This isn’t about Lutz understanding the consumer. This isn’t about “the demise of the ICE” and the rise of electric cars.
This is about Apple entering the car business. By all accounts they appear to be approaching this as creating an electric vehicle and selling direct to the consumer. That is nowhere near as simple as selling computers, MP3 players, smartwatches, or even phones. Apple is going to burn through far more cash developing their own car than they did coming up with any other product.
He’s right – despite the hype, autonomous cars are a few decades away. And with gub’mint regulations, why is Apple even getting into this mess?
Maybe they know something that we don’t. i.e. something that they have been working on for years in their labs, something in the numbers that they came up with when they ran their projections, who knows?
The point is, Apple is not run by stupid people and based on their record, if they do something that I don’t understand, I would rather place may bets on “they must know something I don’t”, rather than “they’re total idiots if they’re doing this.”
iPhone 5C.
Apple doesn’t always guess right.
Their track record is still way better than yours or mine. I’d still put money on them then on your or me.
I don’t believe Apple is going to build a car. They may be building technology for a car, I can’t see them getting into bending metal.
I can see them forming fiber composite shells though.
“Apple will fail, just like they’ve done so many times before… ”
Apple Computer was a startup computer company that couldn’t possibly compete with the likes of IBM and then Microsoft. It now makes more profit per year than both companies.
Apple couldn’t possibly take on the music industry and gain control over the established and deeply entrenched record labels when they started iTunes and launched the iPod… but they did, and changed the entire music industry.
Apple couldn’t possibly enter the phone market because they couldn’t compete with the established behemoths of Nokia and Seimens… but now Nokia is owned by Microsoft and it’s still struggling, and the iPhone is the most copied device on the planet.
Apple couldn’t possibly design a tablet that people would buy because Microsoft had tried for years and failed many times… but the iPad took the world by storm, and now every other manufacturer copies the iPad.
Apple couldn’t possibly enter the car market because… mumble, inexperience, mumble, low margins, mumble, money pit, mumble… Why make all this fuss over Apple if they pose no threat to the car industry?
So what you’re saying is that they’ll be bankrupt in six months? ;)
Allowing Lutz’s comments any weight is like asking Dick Cheney what we should do next in the Middle East. They were/are both blow hard/speak louder types who were happy to cash large checks while cheerleading during the worst periods of their respective periods of employment. Later to pretend ..’It wasn’t my fault.
Since GM and most “OEMs” rely for the majority of their parts on shared contractors, there is no reason Apple could not buy a small legacy brand like Mazda and repurpose it in 24 months.
Jim
Dick Cheney is a lot more intelligent than Lutz. Good thing he is a former GM employee.
First, what most people don’t get it is that ONLY Apple has high margins in their hardware market segments. NO ONE else has Apple’s margins in personal computers, mp3 players or smartphones. NO ONE. Samsung made good margins for a couple years but has now fallen back into the typical pack. So, for those who think Apple is entering into a low-margin business does not understand that ONLY Apple knows how to make high margins in hardware in their business segments. That is why the current auto industry should be worried.
Second, Apple is not going to build an internal combustion gas engine. An electric car simply needs controls to move the wheels at varying speeds and then be able to stop. That is ALL. Everything is handled by software. The rest are OFF THE SHELF parts. The hard part was the engine and transmission – NO LONGER NEEDED (well, in the combustion sense of mixing air/gas and driving pistons). An electric car is just software and batteries. Look at Tesla. They can simply download software that makes your car go faster. Can GM do that? No. The rest of the car is simply comfort and safety.
How many cars does Apple have to sell to break even? how easy would it be for them to consistently sell more than that to make a profit and what’s the maximum profit margin could they achieve and how achievable is it? You can’t build a brand off of one model, look at Tesla, they lose money every year.
If he thinks Apple are getting into the vehicle industry he’s living in the old world… Apple are getting into the transportation industry.
Apple is the greatest Chinese company that has ever been. They have all of the resources including the support of the Chinese government to get this done.