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Why Apple Saved Itself the Embarrassment of Making an iCar
For Apple Inc. (AAPL) , life has always been about promoting prestige.
Whether it’s the pricing for a fresh digital assistant at almost dual its closest competitor Amazon (AMZN) or letting out iPhones at $599 a pop, Apple has long been keen on being the Rolls-Royce of tech.
So as news trickled out on as to why Apple is scaling back its efforts to create a self-driving car in favor of just producing the technology that enables autonomous rails, one thing hopped into my mind and the minds of some of our top editors here at TheStreet:
Maybe Apple just doesn’t want to make a crappy car and fear the subsequent fallout. Imagine if a self-driving iCar goes off the road and hits a tree in testing — Twitter would be active for a week straight trashing the company.
The challenges and costs of becoming an automaker from scrape may have also funked Apple. My colleague Eric Jhonsa touched on this point back in September when the very first reports came suggesting Apple was pivoting in its plan for self-driving predominance.
“From the time that the very first reports of an Apple car project emerged in early 2015, questions existed about whether Apple could pull off a feat as daunting as becoming a large-scale manufacturer and seller of electrified cars,” Jhonsa wrote. “It was, after all, something that would be both costly and require Apple to develop many abilities outside of its traditional wheelhouse.”
A luxurious Apple store.
To see the fights of building an automaker from scrape one must look no further than Tesla Inc. (TSLA) , Elon Musk’s electrified car “startup” that is presently working on a fully autonomous vehicle, among other moonshots products. Amazingly, Tesla, which carries a market cap of $58 billion and has goals to ship more than 100,000 fresh Model 3s by the end of 2017, has only been in existence since 2003.
Why would Apple need this headache — unlike Tesla, it’s already the most valuable company on the planet.
Designing cars is very capital intensive, something that would likely take a yam-sized chunk out of Apple’s cash hoard.
According to a latest PwC report, four of the world’s twenty largest R&D spenders in two thousand sixteen were automakers (Apple, was the 11th-biggest spender in 2016, moving up from the 18th position in 2015). Developing an electrified car from scrape would require major investments in motor, battery, drivetrain and software R&D, among other things.
That’s money that could be spent on more stock buybacks in the attempt to please notable Apple shareholder Warren Buffett.
“And many of those investments would require workers with a very different set of engineering abilities than those needed to design iPhones or MacBook Pros,” Jhonsa wrote in September.
Germany’s Volkswagen was the top R&D spender in 2016, according to PwC, while Toyota was 10th. General Motors Co. (GM) , ranked 12th, while Ford Motor Co. (F) ranked 15th. Mercedes Benz maker Daimler ranked 16th.
Stick to expensive plastic phones, Apple.
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Editors’ Pick: Originally published Aug. 23.