Apple Inc. is looking to build an electric car in what is dubbed as Project Titan.
Apple Electric Car Plans May Not Be Good Value for Shareholders
However, market observers warn that shareholders should not be too optimistic about the profitability of an Apple electric vehicle given the outlook in the automobile industry.
Already, the company has hired hundreds of workers from the auto industry to do the early work of developing an Apple car concept for an electric minivan. Apple’s ambitious project is in direct competition with electric cars sold by Ford Motor Company, Tesla, Nissan, and General Motors among other companies selling hybrid vehicles.
In the event that Apple is successful with Project Titan, it must be prepared to overcome the wide range of environmental and safety regulations. Overall, the profits from electric cars are low margin, a prospect that may not be too attractive to Apple shareholders who are used to large profits.
Erik Gordon, professor at Ross School of Business at the University of Michigan said, “They ventured in the phone business and they succeeded, but the car business is more difficult. It is easy to contract with a company in China to assemble phones but you cannot do this with assembling of cars.”
Apple electric car project well-funded
Apple has a cash fund of about $178 billion to undertake this project. This is seven times what General Motors is working with and six times what Volkswagen has in capital expenditure.
Jon Bereisa, CEO of Auto Lectrification LLC consulting firm said, “This is still a car project and is still foreign to Apple. With autonomous cars, more software, computation and controls are necessary. They would have to work with other car companies to put Apple software in the electric car.”
Some industry analysts say Apple is simply looking for a way to spend its money by entering into new markets. Apple has its eyes on the automotive industry but will have the challenge of replicating their consumer electronic designs into a car.
However, just because the technology giant is a leader in design does not mean that they will make the best Apple electric vehicle. Increasingly low gas prices have lowered demand for fuel-efficient cars. General Motors dropped prices on its Chevrolet Volt hybrid and so did Nissan on its Leaf electric.
Electric cars still make up a small proportion of global car sales. Industry leaders such as Nissan and Tesla sell as few as 30,000 units each year compared to industry trends where over 100 million cars are sold each year.
Is Apple electric vehicle good for the future?
Changing regulations are challenging the notion that electric cars are the best choice for the future.
The California Air Resources Board, which sets precedent in clean air regulations all over the U.S., favors the production of hydrogen-powered cars. These types of cars can be refueled much faster compared to charging an electric car and can drive longer before running low.
Additionally, many states offer double rebate for hydrogen-powered cars compared to electric ones. It is likely that hydrogen vehicles will gain more popularity than electric ones.
There is no doubt that the electric automotive business is tough right now. Gordon asserts, “For Apple, the problem is not the availability of money to pay for the car. But, shareholders and market analysts will resent the margins.”
Ben Kallo, a R.W Baird analyst said, “Even if apple started now, it would take several years to reach Tesla’s level.”
Some market observers see Apple electric car project as fitting with the company’s long-term strategy to increase share price gains.
Many companies, especially car accessory firms in China already saw their share price increase soon as news on the Apple electric vehicle was announced.
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