Being an Automaker: A Cautionary Tale from Apple

If Apple can’t make an entry into the automotive sector work, what makes any of the new participants in the industry believe they can succeed? As we learned this week, Apple has halted the development of an autonomous, electric vehicle. According to multiple reports, there are two primary reasons for Apple’s decision after 10 years of development and billions of dollars spent.

Autonomous technology, which appeared to be imminent a few years ago, has proven to be a significant challenge for Apple, as well as for every other company investing in autonomous driving capability.

Even a vehicle priced near $100,000 would not produce the kind of profit margin Apple expects from its hardware products, like the margin driven by its iPhone sales.

The success of Tesla has been the primary impetus for many companies to enter the challenging world of the automotive industry. Yet, before Elon Musk and Tesla, the last U.S. automaker to succeed was Chrysler, which was founded in 1925. Thus, Tesla should be considered the exception in the auto sector, not the industry norm for new auto company success.

Today, the survival of Rivian, Lucid, and Fisker are all questionable. Even Tesla has resorted to significant price cutting to help keep customer demand matched with its growing manufacturing capacity. Tesla once enjoyed an industry-leading operating margin. Now, its margins are in line with many legacy automakers that primarily produce ICE vehicles.

Elon Musk once said, “When something is important enough, you do it even if the odds are not in your favor.” A key understanding of that quote is first knowing that the odds of success are low when entering the automotive market. In a Wall Street Journal article, Tim Higgins wrote that Detroit tried to warn Apple that the automobile business is “a tough, low-margin game.” Fortunately, Apple finally came to the same conclusion before it was too late. Unfortunately, many of the new auto entrants will likely be doomed to extinction.

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