Apple Gets Hard Lesson in Making Cars

"The Car Guys warned Apple that the metal-bashing business could be a tough, low-margin game. But nobody wanted to listen to a bunch of dinosaurs from Detroit.

Instead, Apple joined the hoopla in Silicon Valley around the idea that a new era of the automobile was emerging, one that would seamlessly marry software and hardware and make the old guard obsolete.

In the end, for Apple, it seems making its own car turned out to be as difficult as doing its own television set. The TV dream died years ago while Apple executives just told their team this week that the work to bring out an electric vehicle was canceled, too.

The latest retreat underscores just how unlikely Elon Musk's success with Tesla has been. To take an electric-vehicle startup founded 20 years ago and turn it into a proper car company on pace to sell almost as many vehicles annually as BMW would have been hard to imagine when Apple began its own car project a decade ago.

But Apple engineers looked jealously at the Tesla Model S, and probably thought to themselves: "We can top that!"

Just a few years into his role as Apple chief executive, Tim Cook greenlighted a secret, ambitious plan -- dubbed Project Titan -- for the company to build its own car. When word of the project became public in 2015, it was greeted by a mixture of hysteria and disbelief.

"I think somebody is kind of trying to cough up a hairball here," General Motors' then-retired Chief Executive Dan Akerson told me around that time, echoing the same sort of sentiment entrenched players had when Apple was first getting into cellphones. He thought Apple's investors should have second thoughts about the escapade, saying a lot of people underestimate how challenging building and selling cars can be.

For all of the buzz around Tesla in 2015, the young company's ultimate success didn't look so certain as it continued to struggle with the basics of building cars, and some questioned if the company could survive.

As news of Project Titan reverberated, it quickly made so much sense to so many. It wasn't a hairball idea but an obvious next step for Cook and a company coming off a remarkable stretch of reimagining and evolving the business first with the iPod, then iPhone followed by iPad as well as digital services such as music and its App Store. Apple would do to cars what it did to phones. And it would win, of course. Plus, Apple, thanks to the success of the fat margins on its iPhones, was then sitting on almost $200 billion in cash.

At one point, Gene Munster, a longtime Apple analyst, projected that entering the car business could help ignite Apple's revenue growth, suggesting if the company captured 10% of the autos market, it could boost revenue by 60%.

That was an exciting prospect for a company facing the law of large numbers and for another evolution.

In the years that followed, an arms race exploded among automakers, tech companies and others rushing to invest in technologies to compete in driverless and electric cars. Billions of dollars poured in while bold predictions were made about robot cars crawling through cities sometime soon.

Except, in the end, Apple's success wasn't as inevitable as so many thought.

Leaks in the press painted unusual uncertainty at Apple as timelines kept slipping, project leaders kept departing and remits kept evolving. Project Titan's ambitions became diminished, less compelling -- from an electric, robot car, then just about perfecting autonomy, then just about an EV.

For a company so accustomed to winning, Apple seemed more and more like a lumbering giant.

Outsider skepticism began to build. Maybe, just maybe, that Akerson guy was right after all -- making cars is hard.

Musk would agree. In the subsequent years after the Model S, Tesla narrowly avoided its own death before hitting on eventual success with the Model 3, a cheaper sedan that helped remake Tesla into a mainstream automaker and further ignited a rush of investment into EV rivals in the U.S. and, more importantly, in China where a price war has broken out.

Amid his darkest moments, in this period, Musk has said he even considered selling Tesla to Apple, but Cook eschewed his advances.

With all of its riches, Apple could afford to be a dilettante in the car business, spending billions of dollars only to change course because things weren't working out as hoped. For Tesla and others, such spending bets were life or death.

Apple's shifting car strategies mimicked the overall state of confusion in the automotive industry.

Driverless cars, which had appeared so imminent a decade ago, have proved a much tougher challenge than many anticipated. And EV sales in the U.S. aren't growing at the same rate as they once were, leading several companies to slow their plans. Even Tesla, which once had industry-defying margins, has seen its profitability narrow.

"Looks like Apple finally came to the conclusion that although they could not get an acceptable profit margin, they weren't going to make that up with volume!" former Ford Motor Chief Executive Mark Fields said by email.

The latest shift by Apple reminded Akerson of GM's own history of trying to broaden its footprint into industries it knew nothing about only to be haunted by those decisions years later.

"The lesson," he told me late Tuesday, "reaffirmed in many instances: stick to your knitting."" [1]

1. Apple Gets Hard Lesson in Making Cars. Higgins, Tim.  Wall Street Journal, Eastern edition; New York, N.Y.. 29 Feb 2024: B.4.