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5 motivations for an Apple-managed car supply chain

Posted: 18 Mar 2015     Print Version  Bookmark and Share

Keywords:iPhone  supply chain  electric car  smartphone 

Editor's Note: Can Apple put up an automotive supply chain on a global scale? EBN writer Bruce Gain shares his views as to why the U.S. tech giant is very much capable of making this endeavour possible.

Why would Apple try to successfully operate an automotive supply chain on a worldwide scale? Perhaps simply because it can.

With almost $180 billion in cash reserves, the company is already on a better footing to enter the car industry than when it reinvented the smartphone market with its iPhone.

Apple has yet to announce that it is even developing an electric car, despite numerous analyst and media reports and strong indicators that it is very much indeed making sizeable investments in an electric car model it plans to produce. Apple could begin production of its car model in 2020, according to Bloomberg.

But before Apple's project does become official, here are five reasons why Apple is more than ready to manage a multi-billion dollar automotive supply chain.

1. $178 billion burning a hole in its pocket

The automotive business is traditionally a complex, low-margin industry usually requiring that automakers spend billions of dollars in capital expenditures in order to compete on a worldwide scale. Designing, producing and selling cars also require a lot of cash, with often low returns and losses depending on hard-to-predict and fickle market tastes and a myriad of other variables.

If Apple does launch its electric car, it almost certainly will not compete directly against the top-five automakers, such as General Motors, which is expected to see $9 billion in capital expenditures in 2015 and sold 9.92 million cars last year. Instead, Apple would most likely compete against newcomer Tesla, which is a niche electric carmaker that offers an iPad-like infotainment system in its models. Last year, Tesla sold 22,450 cars and invested close to $1 billion in capital expenditures.

Some observers see Apple's move into the low-margin and capital-intensive automotive industry as a sign that it does not know what to do with its cash. But with $178 billion in cash reserves, Apple can easily out produce and spend Tesla by a factor of five or even 10. It also could, if it wanted to (but will almost certainly not), match General Motors' capital expenditures over a couple of years or more before even putting a dent in the free liquidity it has available.

2. A ready roster

Apple already has made hundreds of high-level hires who hail from the car industry. Within its top-level executive ranks, Apple CFO Luca Maestri has two decades of experience working for GM where he held finance- and operations-related executive positions.

Apple has recruited hundreds of other auto industry insiders to join its development team. According to the Wall Street Journal, Apple has recruited hundreds to work on its supposedly secret electric car project, many of whom hail from likely rival Tesla.

Among its hires, A123 Systems, an electric car battery maker, claims in its lawsuit filed against Apple this month that Apple has illegally tapped design experts and other talent from its company. Those whom Apple has hired are also violating their employment contracts, A123 Systems claims in its lawsuit. Regardless, Apple now has acquired in-house talent it needs to develop batteries, a critical component of electric cars.

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