Apple Inc. (AAPL) May Win McLaren But Even a P1 Can’t Beat a Tesla

apple inc (AAPL) Project Titan

Apple Inc. might acquire the British luxury car maker McLaren. This news follows news of Apple stalling its in-house development of autonomous cars. A report by the Financial Times claims that the firm “is considering a full takeover of McLaren or a strategic investment”. Now, there’s a big question mark regarding whether Apple remains serious about staying in the self-driving car race with Tesla Motors Inc  and Alphabet owned Google .

Apple Inc. Goes for Top Auto Talent

The Motley Fool weighed in on the pros and cons of such a deal, should it happen at all. The tech titan is reportedly interested in the British maker of supercars. Evan Niu of The Motley Fool wrote about yesterday’s big Apple story. The firm has tried to get in touch with the famed British supercar maker McLaren.

Apple Inc (AAPL) Mclaren

On the table is a likely buy-out or joint venture of some sort. This comes from Financial Times, citing anonymous sources that say talks began a few months ago. McLaren is valued in the range of $1.3 bn to $1.9 bn, and operates at a loss. McLaren has quite a bit of institutional knowledge that Apple might want to get its hands on. Here’s why a potential deal does and doesn’t make sense.

The firm has been poaching plenty of automotive engineers from the industry for some time. But, an acqui-hire of this size would significantly bolster the talent under its roof. A deal could probably be done for less than what the firm spent on Beats, its largest historical acquisition to date. CEO Tim Cook has said openly that he won’t be stopped from making deals based on price alone anymore. But yes, it is provided that the deal is a good strategic and cultural fit. McLaren is a quintessential premium brand, much like Apple, as its vehicles often sell for $1 mn and greater.

Since McLaren is based in the U.K., Apple Inc.  would also probably be able to fund the deal easily. It has substantial foreign reserves and this deal will lead to making better use of that idle cash. Last week itself the firm was in the news about an EU tax row which was a matter of concern for FX traders.

But Why a Firm which has No Electric or Self-driven Cars?

Why it doesn’t make sense: Apple’s preference with acquisitions is often to shut down the business. After this, it would go for redeploying products and technologies in its own lineup. Most of the time, these revenue streams are negligible enough that no one really notices. McLaren reportedly generated nearly $600 mn in revenue last year, and produced about 1,600 cars. If Apple chose to shut down McLaren’s existing operations, that would be quite a bit of lost revenue. It could also mean potentially killing one of the most famous supercar brands in the world.

That level of volume also shows that McLaren wouldn’t have much expertise in manufacturing cars in high volumes. This would be a requisite for the Apple Car. Manufacturing cars at scale is easily the hardest aspect of competing in the auto industry. Apple still needs to figure out how to tackle that problem given its complete lack of experience. It also has a lot of aversion to making the cars in-house.

Also, there would be little value to Apple Inc.  in McLaren’s underlying propulsion technology. And McLaren certainly has no expertise in autonomy, either. These issues are quite important in electric cars due to the implications on range. There are plenty of pros and cons in this potential deal, but Evan bets that it doesn’t happen.

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