Thursday, March 12, 2015

If Apple Can Bring Innovation and Disruption To the Auto Industry, None of the Arguments For or Against Matter

This post from Boy Genius Report rehashed many of the reason why Apple is not likely to develop its own car.  The most talked about reason why Apple will not develop its own car is because of the historically low margin the auto industry has selling each car while Apple's products enjoy margins might higher.

If margin is more of an issue than the billions that Apple will likely make from selling cars, then that is correct.  It should also mean that Apple should get rid of some products with margins that are dragging down the iPhone.  Apple's crack team of executives have thought about this and will adjust the company as well as Wall Street accordingly. 

As far as margins go, Apple would make sure it can at least match if not exceeed the 15% margin that Porchse is pulling in and at least twice that of most luxuary brands. 

The other argument is the number of models Apple is likely to put out compared to BMW, Mercedes, Porsche, and other high-end cars.  Telsa has only a couple of models.  Except for a few hiccups, it's doing quite well.  And on top of that, it has long-term plans in the works that should help the company stay lean and ahead of its competitors.  Apple with much more resources could manage at least that.

Then there is the argument that make a couple of extra billion dollars a year won't interest Apple.  Seriously?  If Apple looked at the number and auto landscape and think it is worth the risk, an extra $2 billion a year is not something it'll walk away from. 

The best argument that I can think of against Apple entering the auto industry is innovation.  What can Apple bring to the car that no one else has beyond just CarPlay and how it can maintain any competitive advantage over other auto makers.  In the smartphone market, Apple maintained a couple of years lead with the iPhone in 2007 and the iPad later but the market quickly caught up.  While Apple has managed to earn the lion's share of the mobile profit, the auto market is a different take altogether. 

So, it is not about margin and how much profit Apple can earn by selling cars.  It's about innovation and disruption of the auto industry and bringing a level of innovation that the auto companies have not faced in decades.  Even with the Model S, Tesla isn't quite putting the fear of Steve Jobs in GM, Ford, or BMW.  But Tim Cook and Apple can. 

And Apple has one advantage no automakers has, not even Telsa or Mercedes.  Apple's rich cult fans.  Period.

Still, I'm skeptical.  But I'm not Tim Cook and no one else is. Only he and a few at Apple knows whether it is worth the risk of developing and selling an Apple car.

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