Bob Lutz, current executive for BMW and GM, is a man known for making bold statements. Lutz doesn’t shy away from saying what’s on his mind. Lutz recently appeared on CNBC and discussed Apple’s intentions to get into the automotive industry at some point and he didn’t have kind things to say about it.
This comes immediately after the Wall Street Journal reported that Apple was definitely going forward with some sort of automobile and was even tripling the size of its development team. Lutz claims to think that Apple is wasting both its time and massive amounts of money, as he feels that it has absolutely no chance of working. He isn’t the only detractor, however. It’s a commonly shared feeling in the auto industry, that Apple will fail miserably if it actually goes through with this. After all, Tesla is the only new car company to be founded by a non-car company and succeed. There have been several and they’ve all gone up in flames. The auto industry is possibly the most difficult one to get into.
Admittedly, Apple does have a lot going for it, namely money. Being one of the wealthiest companies in the world, Apple can pretty much break into any industry it wants. But the auto industry is a very low-margin industry with extremely stiff competition. This isn’t the phone industry where the margins are sky-high. Lutz mentions this when asked if he thought Apple’s decision is a good one.
“No, I don’t think so. If I were a shareholder I’d be very upset because they’re currently engaged in a very high-margin business and the automobile business, at best, is a very low margin business. And you can’t show me one company in the world that, to date, has made a nickel on electric cars. They are generally money losers and the only reason that everyone is producing them is because they are necessary to meet European fuel economy regulations and U.S. fuel economy regulations. There is absolutely no reason to assume that Apple is going to be financially successful in the electric car business.”
While some may say that Apple enjoys high margins in everything it does and would do the same in the auto industry, it doesn’t necessarily work like that. The production cost of automobile is considerably higher than iPods. Then there’s the distribution which is far more expensive, the legal red-tape that automakers must jump through, safety regulations, crash testing and on and on it goes. This isn’t just making some new iPhone, automobiles are incredibly difficult manufacture and distribute. Especially the legal part of it, just ask Volkswagen.
Apple has been hiring some of the best minds in the technology business, however, especially when it comes to battery development. But according to Lutz, this won’t help.
“First of all, Apple has no expertise in batteries. They don’t make batteries. The specialized electrochemical companies make batteries and Apple is going to buy batteries like everyone else. And when it comes to actually making cars, there is no reason to assume that Apple, with no experience, will suddenly do a better job than General Motors, Ford, Volkswagen, Toyota or Hyundai. So I think this is going to be a gigantic money pit, but then it doesn’t matter. I mean Apple has an embarrassment of riches, they don’t know where to put the cash anymore. So if they burn 30 or 40 billion dollars in the car business, no one’s going to notice.”
Admittedly, there have been reports of Apple using a third-party company to build the car while Apple just supplies the software. This would make the most sense for Apple, especially if it can partner up with another large automaker, kind of like how Daimler owned some of Tesla for a little while and supplied much of the hardware for the Silicon Valley brand. Though Lutz feels like that won’t work either.
“Well yeah, they could. They could get Hyundai, Kia or a Chinese manufacturer to manufacture the cars for them and then they would put all of their software and interconnectivity in it afterwards, but I don’t see the advantage to that… But to say that [Apple] is going to do it with an electric car which is, from a cost standpoint, [that’s] the toughest way to go. And by the way, the electric car market is still miniscule. That just doesn’t make sense… If I were a board member of Apple, I’d ask some serious questions about this thing.”
Bob Lutz may be somewhat bombastic, this is true. But he’s not off-base here. The auto industry is enormously more difficult than the technology industry. Designing, manufacturing and distributing a successful automobile is damn near impossible in today’s market. Tesla is the only newcomer, out of many, to do it and it’s taken nearly a decade for it to become successful at it. Bob Lutz may make some outlandish comments from time to time, but he’s a man that’s helped run two of the most successful auto companies in the history of the industry and is a very smart man. His opinion should be respected whether it’s agreed with or not.[Source: BGR]