Thread by @bopinion

If Apple is going to make a success of its car project, it has to target the $230 billion luxury car market.

But displacing 125-year-old incumbents like Mercedes-Benz won’t be straightforward bloom.bg/3bmW0pC

Apple’s efforts to build its own car have undergone several false starts as costs ballooned:

➡️Started in 2014
➡️Hundreds of staff laid off in 2016 and 2019

Now it’s trying again, though it’s at least 5 years away from production bloom.bg/3bmW0pC

https://twitter.com/Quicktake/status/1347741147200958464?s=20/video/1

For all its stock market success, Tesla has demonstrated the pitfalls that come from a lack of experience, enduring manufacturing chaos and missing production goals.

Because of this, it's likely Apple would contract the manufacturing out to a 3rd party bloom.bg/35oBUHP

That third party could be the Canadian company Magna, which about five years ago had close to 100 employees working with Apple. But it’s not the only option.

Foxconn, which makes iPhones for Apple, is also stepping into the automotive industry bloom.bg/35oBUHP

Don’t rule out a partnership with an established carmaker either. Five stand out for having developed electric vehicle platforms:

🚗The Hyundai and Kia partnership
🚗VW
🚗Volvo and parent Geely
🚗The Renault-Nissan-Mitsubishi Alliance
🚗General Motors bloom.bg/3bmW0pC

In consumer electronics, Apple is used to getting first dibs on the best tech.

If Apple wants exclusivity on cutting-edge 3-D sensor technology, suppliers fall over themselves to contribute to the 200 million+ iPhones it's expected to sell this year bloom.bg/3bmW0pC

That’s different when it comes to cars.

There’s little incentive for a supplier to provide exclusive components to a newcomer when Volkswagen would sell some 10 million vehicles that year bloom.bg/3bmW0pC

Nonetheless, while teaming up keeps your fixed costs low, it poses a challenge when it comes to profitability.

A contract manufacturer usually costs about 10% more than making the vehicle yourself bloom.bg/3bmW0pC

Profit margins in carmaking are already slimmer than they are for the iPhone:

Tesla likely enjoys a gross profit margin of about 30% on the Model 3, but Apple’s gross margin on the iPhone is almost double that bloom.bg/3bmW0pC

🔋The single biggest outlay in EVs is for the battery, which doesn’t benefit from economies of scale due to the fixed cost of raw materials.

Tesla Model 3’s battery accounts for more than a third of the total manufacturing cost, at some $13,000 apiece bloom.bg/3bmW0pC

If Apple is able to find a way of reducing that cost with new battery technology, carmaking becomes a more attractive proposition.

But even a 50% cheaper battery would leave a car short of iPhone profitability if the price point is similar to Tesla’s bloom.bg/3bmW0pC

So how to bridge the gap? By raising the price. Apple is not going to make a mass market car.

Expect it to cost more than $100,000, particularly if it has self-driving capabilities that use sophisticated lidar technology bloom.bg/3bmW0pC

Apple has a chance of becoming a serious carmaker.

It has an edge over incumbents when it comes to software and design, and may even have a jump on battery technology, though such advantages wouldn’t last forever. The race is on bloom.bg/3bmW0pC