The move has been rumored for a long time.
September 7, 2021
Apple (NYSE: AAPL) entering the car market has been a rumor for a number of years. Now, those dreams appear to be a little closer to reality as multiple media outlets report that the company has had executives in Asia meeting with Toyota (NYSE: TM) for a branded car that will hit the market by 2024.
The electronics giant has had people working in the automotive space since 2014 but what that actually means has varied. At times, the company appeared to be pursuing the creation of an Apple-branded vehicle while at others it appeared more focused on autonomous vehicle software.
Toyota would make a logical partner if Apple intends to deliver a car by 2024 since it has the manufacturing capacity and a near-global footprint. Details about this potential alliance, however, remain in the rumors and guesses stage but there does appear to be more fire amidst the smoke than there has previously been when it comes to guessing at Apple’s plans for the automotive industry.
Matt Cochrane and Maxx Chatsko joined Dan Kline on the September 3 edition of 7investing Now to take a look at the rumors and discuss what they would like to see the company do in this crowded, but lucrative space.
A full transcript follows the video.
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Dan Kline: But let’s start with it. Are Apple (NASDAQ: AAPL) and Toyota (NYSE: TM) building a car? So some news came out yesterday. But let me point out that this is all in the rumor category.
This is a this is not in the like Apple came out like driving a car, which I assume would look like the the car that the Apple Car that brings like the relief pitcher in at various baseball stadiums, but probably not. Apple is rumored to be in Asia, I would assume that’s people from Apple, not the entire company, visiting Toyota as it prepares to lay the supplier groundwork to mass produce a branded car by 2024. That is, according to a report by Digitimes. An outlet I’m not all that familiar with.
But it was reported a lot of places. They’ve been working on car-related projects since 2014. So this is a long time coming. And the rumor is that this project will hinge around a new type of battery technology. Matt Cochrane, you just bought a car, I assume it is not a particularly nice car, because I think it’s for your for your kid. But do you think Apple should be entering this space?
Matt Cochrane 2:35 We bought a new 2008 Toyota Camry is our fancy car. Glad you asked because I was worried about answering that part of the question.
Dan Kline 2:45 I had a 2003 Toyota Camry, those things go forever. Those are actually really, really good investments. I asked, should Apple be entering the car business? To me, I can see the upside, I can also see a lot of things going very wrong.
Matt Cochrane 3:01 Sure. So I think a lot of this depends on how much of this is a partnership with a car manufacturer like Toyota, which like possibly provide infotainment features or battery and autonomous driving technology, or Apple going more alone and trying to make a car from scratch with a little support from Toyota. So Apple has had an amazing run by making auxiliary products to the iPhone, like the Apple Watch and AirPods and services to support that ecosystem. So if they’re doing this alone, that I think it’s a horrible use of money.
But if it’s more of a partnership, where they’re just offering like some key technology to some features, again, like I’m thinking like battery technology or autonomous driving technology. I mean, battery technology would be great, because they can probably apply a lot of that R&D to their phones, too, then I think it’s fine. I think it’s a smart move. But if it’s like Apple really wants to make the car on their own with a little support from Toyota, that I think it’s a horrible idea.
Dan Kline 3:57 Yeah, I actually tend to agree with Matt there. And I think that’s what’s happening. So I drive a Toyota Prius, which is a pretty impressive car, and I have an older one. So it’s not it’s a 2016. So it’s not even the most up-to-date. But, Maxx, from a marketing point of view. And I know that’s not your area, but you’ve been marketed to. From a marketing point of view, would you get more excited by a new Toyota, assisted by Apple or an Apple Car that Toyota built? I think this is going to be a Toyota using some assistance from Apple if it’s a real thing. And I think that’s just a brilliant play, because we’re talking about this two years in advance of it happening. And we are not the only ones.
Maxx Chatsko 4:34 Yeah, I mean, we’ve seen a lot of the newer companies that trying to make cars, right. It’s been hard to be successful there. But like, look at Tesla. That’s a very large outlier, obviously. But some of the newer companies are kind of reimagining what cars might look like, little more innovative for interiors, exteriors, you know how the car is designed. So I mean, that would be pretty interesting if Apple can come in and shake things up again, and unlike some of these other companies, and has certainly the deep pockets to be able to do so.
Dan Kline 5:03 Yeah, and Apple also has a good design aesthetic. I always worry with some of these companies if you ever saw the episode where Homer finds his Simpsons episode, where Homer finds his long lost brother who owns a car company, and he designs a car for the average man. And it, of course, turns out to be a debacle that bankrupts the company. I wish I had that image, I would have shared it before the show, but it is a ridiculous car.
I worry about that with some of these or just some of the sameness like we have a Lucid Motors near us and like they’re fine. Like, there’s a big glass showroom, I’ve never been in there. But you can see the cars as you as you walk by used to be a pizza place. And to me, it’s like, well, why do I need this? Like, if I’m gonna buy an electric car, I’m probably gonna buy a Tesla. Unless you’re doing something really different by really different, I mean, double the battery length, half the price. That doesn’t seem like an apple thing. Matt, can Apple innovate in this space?
Matt Cochrane 5:53 Sure. I mean, like, in some aspects? Absolutely. You know, look, Apple has a substantial war chest, just I think, like $61 billion. They’re a free cash flow machine. So they can throw that money out a lot of, you know, researching solutions for again, things like autonomous driving or battery technology on the ladder, you know, which could also be applied to its phones. So yeah, I think they have a lot to offer their infotainment or just the way your car connects to your phone without like a Bluetooth connection, things like that. I think Apple has a lot to offer a car manufacturer.
Do they have like, you know, do I think they can come out with like a better four-wheel drive, then like Toyota has or like, a better like, you know, transmission or something like that? No, absolutely not. So again, it just really kind of depends on what the partnership is for.
Dan Kline 6:42 They could come up with a lot of better things that especially if we move to a driverless world. Things like the in-car entertainment system are going to be very important. And again, having a car that rethinks design could be very important. But Maxx, they’ve talked about some of these stories reported that batteries, were going to be the crux of it. Do you think Apple can out Tesla, Tesla when it comes to batteries?
Maxx Chatsko 7:06 Yeah, I know. So Tesla has been very successful, right, obviously, and it’s, again, reimagine what a car should be. It’s reimagine how we manufacture batteries and doing so at very large scales, right? That’s always been one of the issues there for manufacturing, you know, energy storage devices. So you cannot fault that Tesla for that. But in terms of batteries, they’re pretty much a commodity. There are going to be other companies.
There’s others are right now, there’s plenty of Gigafactories that are planned throughout the world. Most electric vehicle, or most automakers, I should say, are planning their own Gigafactories. So in terms of out Tesla-ing Tesla, you’re giving me a tongue twister there, Dan. In terms of out doing Tesla, I’m not sure that’s really the right metric to go on. Important to note, though, Toyota has gotten a lot of flack for being one of the slowest adopters of electric vehicles. So this might be obviously it’s still a rumor, but this would be me be more important for Toyota than Apple. And if you’re going to partner with anyone and trying to catch back up because you’ve been delaying your entry into electric vehicles, well partnering with someone like Apple is probably a pretty good way to make up for lost time.
Dan Kline 8:17 That JT, we will share that in a second. I’d like to take Max Lucas’s comment before we move back to what Matt Matt was talking about. Max Lucas, friend of the program, this is going to screw up our transcription service. When I have both Maxx’s on there. They’re never sure how many x’s are in Maxx. My problem with anything Apple is their veil, their walled garden. I use a Samsung phone, so I’d never buy an Apple product because they don’t integrate well. I think that’s fair.
But I do think that the reality is the overlap between people who are spending, you know, let’s call it 40 to $60,000 would be my guests for an Apple car based on where – and that’ll come down over time. People who are going to spend that kind of money are probably more likely to be iPhone users. I think, you know, look, I am an Apple person but I drew the line at Apple TV because the Amazon Fire and the Roku device are cheap. I wasn’t buying a super expensive device. Our producer JT Street dug up a picture of homers, the car Homer Simpson generate and that is very much what it looked. Like separate seating, and it had drinks that could drink holders that could accommodate a Big Gulp. We’re being a little silly. We’re probably violating copyright laws. So we will move on. Matt Cochrane
Matt Cochrane 9:28 Hold on, Dan. An important point here is that Homer’s brother came back a few years later with a baby translator. And I wonder maybe Apple has something like that in the works that would be a big thing.
Dan Kline 9:37 Well it’s funny. You mentioned that because I think a lot about the Apple Newton. There’s a chapter in my book, Worst Ideas Ever, funny book that don’t send me any money so it doesn’t matter if you buy it. There’s a chapter in my book about the Apple Newton being one of the worst ideas ever.
The reality is the Apple Newton laid the groundwork for the iPod, which later became the phone. So it’s absolutely possible that There could be a misstep here. On the other hand, there’s an awful lot of, you know, I doubt Amazon’s going back into the phone business anytime soon. You know, same for ESPN. If you remember the ESPN phone. But Matt you have a couple of graphics you wanted to close out here, I’ll tee up the question. Can Apple afford to do this, I’m pretty sure there’s nothing Apple can’t afford to do.
Matt Cochrane 10:18 Well, that’s probably a good point, there is nothing Apple cannot afford to do. So like, let’s like, take a quick look at Apple’s balance sheet here. Like they have more than $60 billion in cash, right, in short term investments on its balance sheet. Now, this is a lot of money, like there’s no getting around that this is a lot of money. But compared to its overall market size – so like, if you look at this, like per share, it only comes out to, you know, a few bucks per share. So you’re talking you’re talking about like, you know, I’m not good at math, but like two and a half percent 3% of its of its share value of $150 share price you’re talking about, like $3 and change or something, have cash per share on its balance sheet. So like, it’s still a very small part of Apple.
So $60 billion in cash, a few bucks per share. Look over the last five years, or over the last several years since Tim Cook over. But we have a five year chart. So we’re gonna just talk about last five years. Apple share count has come down dramatically, because Apple has spent this money on their balance sheet buying back shares and raising its dividend. So if we can JT we can share that graphic. So this is why like Apple has done phenomenally well, right? Because they have this great ecosystem, sticky ecosystem where it captures consumers around the iPhone, and they add the supporting products like air pods and the Apple Watch, and all these services it offers.
And they use all that free cash flow or not all of it, but a lot of that free cash flow, they’re buying back shares to raising its dividend. So is it better? Like would it reward shareholders and shareholders have been rewarded substantially from this. Over the last five years, as a share counts been going down and as that dividends been going up, Apple total share, returns, total returns are over 500%. Right? So like Apple’s done phenomenally well. I mean, we all know that Apple’s a phenomenal company. It’s done phenomenally well. Like, is this a distraction from that winning formula? Yeah, you have to wonder if it is. And you have to wonder if even Apple might be biting off more than it can chew here on that formula.
Dan Kline 12:17 Let me let me jump in here. And Maxx, I want to hear your opinion on this as well. If you’re Apple, don’t you have to take giant swings? Because we have the Apple Watch. I always point to my wrist. But I’m wearing a Fitbit at the moment, not an Apple Watch. The Apple Watch is like a rounding error on the Apple results. So don’t they have to do something like that’s a huge market like automobiles or healthcare, if they’re going to continue to move the needle and prepare for the theory that eventually the world moves on from the iPhone? And I don’t know what that would look like if it’s implants or robots or who knows what. But Matt, am I wrong in thinking that as long as they work with Toyota, which can provide the manufacturing, they kind of need to do things like this?
Oop, and Matt is talking but no sound is coming out. So I’m going to assume he’s either muted. Or something has gone wrong there. Maxx, why don’t you weigh in on the health care aspect of this? Well, while we see if we can get Matt figured out.
Maxx Chatsko 13:15 Matt, you go ahead. Yeah, I see. yourself.
Dan Kline 13:18 Yeah, we can hear you now.
Matt Cochrane 13:19 Okay. Um, so I would just say like, like, yeah, I actually think Apple should be more worried about AR and VR glasses and things like that, where Microsoft and Facebook already have substantial head starts, um, then cars. Like I think they need to be worried about the – you know, Mark Zuckerberg always talks about the next computing platform. I think Apple should be more worried about that, then cars.
Dan Kline 13:43 Maxx, your thoughts here? We’ve talked a lot about Apple and healthcare and sort of their ambitions there.
Maxx Chatsko 13:49 Yeah, you’re right. I mean, what’s the company’s valued at, $2 trillion? It’s a machine in terms of generating cash. Sure. I mean, I don’t see the reason that it can’t take big swings, like maybe a vehicle or healthcare. And of course, we’ve been careful to point out this is a rumor, I think maybe it’s more likely that Apple’s may be developing platform for cars, maybe that can be licensed out broadly across, you know, the globe. So maybe it’s not just like one car, one vehicle with Toyota.
Maybe it is I don’t know, but lots of interesting ways to use software AI, within you know, energy storage or distribution or optimizing, you know, charging or things like that. Things that can be deployed widely across the rest of its ecosystem as well. So sure, no, not my area, but I can’t fault Apple for trying to innovate in new spaces, like maybe auto manufacturing or medicine.
Dan Kline 14:41 I actually think this is pretty low-hanging fruit, as silly as that sounds. Toyota knows how to make cars. And I’m not saying this is just Toyota slapping Apple branding on a car. I think there will be Apple innovation if this actually happens. But there’s a very big leap to go from being part of developing a car to opening up car manufacturing plants. And obviously, this is something where if it works, Apple can take a stake in Toyota.
That sort of leads into our last question. We’ll let Daniel Delgado close this out. I’m not sure if any of us are gonna have an answer here, but we will try to get this up there. Apple still has a connection financial interests with Lordstown motors. That is symbol, RIDE? Do you think Apple should be buying Lordstown since they’re in financial trouble? No. I think Apple can pick the corpse if they want if that if that’s what happens. Maxx, your thoughts here?
Maxx Chatsko 15:30 Yeah. I mean, there’s a reason that Apple is in Asia talking to Toyota, right? It wants the manufacturing in the scale of expertise, right? It doesn’t want to buy some rundown manufacturing plant in Ohio, and then try to make it work. It’s gonna work with Toyota, one of the big boys, if it’s ever going to do this, and it has the money to do that. It makes more sense.
Dan Kline 15:50 Yeah. And Apple also needs global distribution. So look, when a Lordstown Motors struggles or goes out of business, you often will not even notice that Apple like hires all their engineers or like all all the tech people, or whatever the infrastructure is, they will often buy startups, kill their product and just be like, oh, like we liked how you use the button here. We want to integrate that into some aspect of what we do. I don’t think we really understand and I understand that a tiny bit from my days at Microsoft, just how many like coders and and program managers and people you need to make these companies work. So when you have a chance to get a bunch of you know, coders who are experienced in the car space, Apple will probably pounce. But so will Tesla and so will other people with aspirations like that.
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