Please ensure Javascript is enabled for purposes of website accessibility

3 Reasons Why the Apple Car May Fail

By Chris Neiger - Apr 22, 2016 at 5:00PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The leap from mobile to automobile is quite a distance.

There's been a resurgence of speculation around Apple's (AAPL 2.54%) rumored electric car, codenamed Project Titan, as of late. Motor Trend should probably get most of the credit for that, after it took a stab at what an Apple car might look like, for better or worse (mostly worse).

Subsequently, some fellow Fools and I also weighed in on what Apple's car might be like once it debuts (you can read our stunningly insightful thoughts here).

But if and when Apple releases its car, there at least a few reasons why its vehicle could have a rough road ahead of it. The company does have its advantages in the automotive space, of course, but let's take a look at three possible downfalls for now.

Problem No. 1: The high-end price tag
Piper Jaffray
analyst Gene Munster has speculated that an Apple car will cost $75,000 when it launches. That's not an astronomical price for an electric vehicle these days -- Tesla Motors' (TSLA 5.14%) Model S starts at $70,000 before any tax breaks -- but it is very much out reach for most car buyers.  

A luxury Apple car isn't necessarily a bad thing; plenty of carmakers offer high-priced vehicles, and Tesla has certainly proven that electric vehicles in that price range can sell.

But the potential pitfall here is that Apple is used to selling high-end devices for the mass market, but a $75,000 electric car is aimed at a small market. Apple isn't used to selling tens of thousands of products -- it's used to selling millions

And that's the difference between Tesla's Model S price tag and Apple's car. Tesla built its business by releasing expensive vehicles that subsequently help pay for increasingly affordable ones. Tesla CEO Elon Musk even thanked Model S and Model X owners at the Model 3 launch for "helping to pay for" the $35,000 Model 3. Apple, on the other hand, is accustomed to immediate (and high) profitability from its devices. It's not building a car company -- it's releasing a new product. And I don't think consumers will buy into a high-priced Apple car the same way they've bought into Musk's vision of mid-priced electric car for the masses.

If Apple sets the price too high, then car buyers may wonder why they shouldn't just buy a Tesla instead (more on that later).

Problem No. 2: The leap from iPhone maker to carmaker is huge
I know this may sound a lot like the automakers who think Apple is way in over its head in building a car, but they do make a few good points. 

Apple has a very strong brand and pretty loyal customer base, but those are mainly for much cheaper products like tablets, computers, and iPhones. Even for Apple, converting users from a $750 phone to a $75,000 car will be quite a leap.

Releasing a car would not just challenge Apple's ability to market its products, it would fundamentally change the type of company Apple is. Apple successfully adapted from being a computer company to a devices and services company, but that's arguably a much easier shift than moving from a devices company to automobile company. 

Additionally, there have been recent reports that Apple is having problems finding an automaker that'll manufacturer its vehicle. Talks with BMW and Daimler have recently broken down, and Apple is supposedly looking to Magna-Steyr to possibly build the car.

Problem No. 3: Tesla is a formidable opponent
Let's stick all of the Apple's-going-to-buy-Tesla arguments aside for right now and just stick with the two companies competing in the automotive space. 

Commenting on an Apple Car, Tesla CEO Elon Musk welcomed new all-electric cars into the market. About the Apple Car Musk said, "It will expand the industry." 

But while Musk may want others to join him on the EV train, there's no way he doesn't still want to be king of it. Tesla has been busy upending the electric car market over the past several years, and its unlikely that Apple will be able to steal Tesla's thunder with its own car. 

I envision that Apple will release a beautifully designed car that reflects the simplicity and functionality of its other products. But Tesla's vehicles are magnificently designed and well-built, too, which means Apple will have a much harder time setting itself apart in the automotive market than it has in the past in the mobile and PC markets.

And then there's the experience problem. Apple will bring its car to the market in 2019 at the earliest. By that time, Tesla will have launched four separate electric car models, created multiple electric battery configurations, will have set up an extensive Supercharging network, and will have been running its own massive battery-producing factory for two years. Apple won't just be entering a new market -- it'll be competing directly with one its most formidable opponents ever.

Foolish final thought
Though I've been skeptical about Apple car in the past, I'm starting to come around to the idea. But I still think the hurdles facing Apple in the car market are huge, and they shouldn't be glossed over. If Apple decides to launch a car in the next three years, it'll likely be one of the most difficult products it's ever built and one of the most challenging products it's ever sold.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Apple Inc. Stock Quote
Apple Inc.
$149.24 (2.54%) $3.70
Tesla, Inc. Stock Quote
Tesla, Inc.
$761.61 (5.14%) $37.24
Piper Sandler Companies Stock Quote
Piper Sandler Companies
$129.32 (2.98%) $3.74
Daimler AG Stock Quote
Daimler AG
$68.85 (3.32%) $2.21
Bayerische Motoren Werke Aktiengesellschaft Stock Quote
Bayerische Motoren Werke Aktiengesellschaft
$81.00 (5.02%) $3.87
Daimler AG Stock Quote
Daimler AG
$17.18 (3.56%) $0.59

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 05/17/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.