Apple Inc. is building a car, but the shape, design, and size of the car remains unknown as the firm fails to confirm or deny any of the rumors. The Wall Street Journal reports that key people working on Apple’s Project Titan (codename for the car project) have picked a 2019 ship out date for the car. However, UBS analyst Steven Milunovich thinks that Apple is better off making iPhones instead of being carried away with making a car.
Apple seems to have a fixation on building the perfect car that would disrupt the auto markets in the same way that the iPhone changed the smartphone market. Apple CEO Tim Cook has hinted that the firm wants “iOS everywhere” and the market had thought that the firm will focus on building an OS (a better CarPlay) that would power infotainment systems in cars. It seems that Apple wants to build something more than an OS to play music in cars.
Apple should not build iPhone on wheels
Jeff Williams, Senior VP Operations at Apple has said that “the car is the ultimate mobile device,” and the firm’s plan to triple the people working on Project Titan shows that the firm is serious about building a car. Yet, analysts don’ t think that Apple is not making a smart decision in its plan to start making cars.
To start with, Apple won’t be able to make the same kind of high margins that it makes on its iPhones when it start making and selling cars. Of course, Apple is the king of premium “luxury” smartphones but it is doubtful that the firm would be able to transfer that brand into the auto space. Even if Apple did build strong brand for premium luxury cars, it won’t be able to boast the same kind of volume sales that has driven profits in iPhones because buying a $100,000 car is different from buying a $1,000 iPhone.
Secondly, making cars is tougher, more complex, and requires more money than making phones. Apple has skilled computer and electrical engineers but it can’t boast that it has a comparable pool of mechanical engineers. The product cycle of cars is long, Apple would need to build a factory; and then, there’s the part about making the batteries and robust charging solution for its cars.
Apple should just focus on iPhones
The same UBS analyst who thinks that Apple is making a mistake with Project Titan posits that Apple has a potential goldmine in its new iPhone Upgrade Program. He says the program “could be a big deal” that could bring in at least an extra 9 million units sales per year and increase the firm’s EPS by 3% to $0.36 per share. More so, other analysts say there is a 70% upside potential for Apple in its iPhone Upgrade Program.