• Cars would hurt Apple's vaunted 40 percent profit margins
  • Building a car is about learning industry, not selling a car

Apple Inc. will never introduce a branded, self-driving car, according to Richard Windsor, an analyst at Edison Investment Research, because it would never be as profitable as the company’s gadgets now are.

Selling automobiles would be “catastrophic” for Apple’s valuation, Windsor said, as the margins are nowhere near the 40 percent gross profit margins Apple earns on the iPhones, iPads and other products. Since carmakers sometimes make no money on the vehicles they sell, earning profits instead from the financing they provide to customers, Windsor said that such margins on a car, even one with an Apple badge, look hopelessly unobtainable.

“How can you make 40 percent gross margins on pressed steel, wheels, brake pads and seats when the others who are buying all these things in much greater volume can’t do it?” Windsor said in an interview. “It’s just not feasible.”

As a result, Windsor said an Apple car would never enter commercial production. Apple did not respond to a request to comment on Windsor’s remarks. The Cupertino, California-based company has never confirmed that it is indeed building a car, though it has been putting together a team, including recruiting engineers and experts in battery and robotics technology, to work on the project. An online publication, Electrek, reported last week that Apple had hired a former engineer from Tesla Motors Inc. to work on “special projects” related to its electric car initiative.

Windsor said that while he has no doubt Apple is trying to build cars, including a self-driving model, he believes it’s doing so primarily as a way to learn about the evolving auto industry and how its existing suite of “infotainment” products - and the valuable data they gather about users -- can be integrated into cars.

Windsor compared Apple’s foray into cars to its earlier flirtation with large-screen televisions, another product Apple experimented with but never launched.

Citing recent media reports that German carmakers BMW AG and Daimler AG had ended discussions with Apple over creating an electric car to be called the "iCar," Windsor said Apple was finding building a car on its own difficult, given its lack of experience in the field. 

“This is why we think Apple turned to BMW and Daimler,” Windsor said. “However, both of these companies have realized how important the data the vehicle generates is and consequently refused to allow Apple to store it in the iCloud.”

Apple is likely now turning to contract manufacturers to work on its car project, which has reportedly been dubbed Project Titan within the company, Windsor said.

Apple might be able to earn high profit margins by commercializing the user data generated by people while driving, Windsor said. Car companies want to own this data and potential profit stream themselves, making it unlikely they will allow Apple a central role in their cars. As a result, Apple might be forced to go it alone in building a car - an effort in which it was likely to struggle, Windsor said.

“They don’t have the DNA of a carmaker,” he said. “We think that Apple’s future in the automotive market is very uncertain as both avenues of earning a return through selling hardware look like dead ends.”

Windsor’s comments came ahead of Apple’s earnings second quarter earnings announcement after the close of trading in New York Tuesday.

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