Apple (AAPL) has halted its decade long project to develop an electric car, according to a Bloomberg report. Senior Columnist Rick Newman notes Apple's profit margin on smartphones and software is far above that of automakers'. He says full-scale auto manufacturing "doesn't fit with [Apple's] business model" given the complexities of the market.
With the Apple car now scrapped, Senior Tech Editor Dan Howley explains Apple's intentions to redirect investments towards generative AI and machine learning.
For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.
Editor's note: This article was written by Angel Smith
Video Transcript
JULIE HYMAN: Apple is reportedly ditching its decade-old effort to build an electric vehicle. That's according to Bloomberg. Joining us now, Yahoo Finance's Rick Newman and Dan Howley. Rick, what caught our eye following this story was the fact that you wrote back in 2015 that it would be insane-- I believe, was your word-- to think that we were going to see Apple cars coming off the assembly line. And it took them a while, but you were right.
[LAUGHTER]
Why did you think it was not going to come to pass, and how does why it actually hasn't come to pass sort of match up with what you expected?
RICK NEWMAN: Well, if Apple wants to call me about strategic consulting--
JULIE HYMAN: [LAUGHS]
RICK NEWMAN: --I'm willing to take their call. So I'm talking about the complete car. And my point back in 2015-- which, I think is still completely valid today-- is that manufacturing something as complicated as an automobile is just not where Apple needs to go for two words-- profit margin. Apple's profit margin is about 26%. That's mostly-- I mean, we know what their devices are. But really, that's a lot of intellectual property and a lot of software. That's the business that you want to be in these days.
So profit margins for comparison-- Apple's at 26. That's awesome. Tesla is only at 16% profit margin. Toyota-- probably the best run car company in the world-- is 10% profit margin. Then GM and Ford are in the single digits. And it's just a complicated business. It's a cyclical business. There's a ton that can go wrong. Even Elon Musk, at some point during the last decade when they were struggling just to make a profit, he said, wow, manufacturing is really hard.
So it makes a lot of sense for Apple to be involved with the electronics and the software and the brains of automobiles because there is a lot of money there. I just never thought it fit with their business model at all to roll automobiles off an assembly line.
JOSH LIPTON: So I guess, Rick, the next question I have for you then-- if it's not going to be cars, what do you think is the big market that Tim Cook moves into that can actually move the needle for a company the size of Apple? Do you think it's GenAI-related products? Do you think it's-- is it health care? Or is it mixed reality with the Vision Pro? Or maybe some combination of all of those?
RICK NEWMAN: So let's let Dan Howley talk about what they might do outside of the car business. But Apple is not going to abandon the car business. They want to be associated with the car. And there's been this big battle underway for more than a decade among all the automakers and Apple and Google and-- Blackberry actually makes software for cars.
I mean, there are a lot of companies that make software for cars. And they want that as a business line because of everything people do in their cars and everything people do that is associated with their cars. They want to know where you are. They want to know when you're passing their store. They want to be able to send you coupons somehow because they know that you're driving past a McDonald's or something like that. I mean, they're-- I'm sure that is-- that market is going to develop.
So I think Apple will stay-- will definitely keep trying to go after that business. I mean, again, those are service businesses that is not bending metal.
JULIE HYMAN: [CHUCKLES]
RICK NEWMAN: So I mean, that's what Apple does, and I think that's where Apple wants to stay.
JULIE HYMAN: So Dan, in that case then, let's talk about the GenAI piece because according to this report, Tim Cook, when he announced it to the workforce that he was going to be winding down the car project, he says some of that's going to be potentially redeployed to GenAI. But like, doing what? Because as we know, Apple has not said a whole heck of a lot about that.
DAN HOWLEY: Yeah. So the GenAI portion of this is strange. They've been working on generative AI. They've said in the past or at least in the most recent earnings call, Tim Cook has specifically said that they're working on generative AI stuff and that they'll have more in the year ahead, that they've been working feverishly on it. They were caught somewhat flat-footed compared to the likes of Google or Microsoft-- especially compared to Microsoft, which got on this bandwagon right away.
But I think as far as what the capabilities will be or how it might start to roll out across products from the car side of things, it's hard to tell, especially since this is a project that's been going on for so, so long. These people will have to be caught up on what's going on with GenAI and then start to work into that. You just-- I mean, it seems like an odd call out. To me, it seems like it's more-- it's less of "Let's get more investment in GenAI," and more "Let's save some money on not rolling out a car."
