This Is How You Know It's Time for Apple Car

Hey look, it's another auto executive explaining to the world how absurd it is for Apple to make a car. It's hard, he said. It will be a money pit, he said. Apple doesn't know anything about cars, he said. And most of all, he said that the auto industry is a low margin business, making it a terrible market to enter.

The "he" in this scenario is former GM Vice Chairman Bob Lutz, and his cautionary words condemning Apple's rumored electric car are how you know this market is ripe for Apple disruption.

Here's his interview in full (via Fortune's Philip Elmer-Dewitt):

Let's take a peek at some of those comments up close.

If I were a shareholder, I'd be very upset. They are currently engaged in a very high margin business. The automobile business—at best—is a very low margin business. You can't show me one company in the world that to date has made a nickle on electric cars. They are generally money losers.

The only reason that everyone is producing them is because they are necessary to meet European fuel economy regulations and U.S. fuel economy regulations.

There's absolutely no reason to assume that Apple is going to be financially successful in the electric car business.

Actually, sir, if you were an Apple shareholder, you'd probably be pretty happy. I am, and I own an insignificant number of shares. To wit:

AAPL Chart Ten Years

Ten Year AAPL Chart
Source: Yahoo! Finance

But that's not the point. Mr. Lutz is hidebound in his insider perspective on the auto industry. He can't think differently about it because he knows everything about it. We've seen the same stuff said about every industry Apple entered or was rumored to enter, from music players, to music sales, to tablets, to ebooks, to TVs.

In each case, Apple has done OK, if you're into that sort of thing. Except for TVs. Apple apparently agreed with those who said the television set business sucks.

Now we're seeing it with cars. Dieter Zetsche, Chairman of Daimler AG and chief executive of Mercedes-Benz Cars, said many of the same things, though he did so with more class. His focus was the low margins that is a favorite bullet point for Apple doubters. Former General Motors CEO Dan Akerson was openly skeptical of Apple's long-term prospects in the market.

Mr. Lutz, however, is my new poster child for this attitude.

Next: Apple Has No Expertise in Batteries

Page 2: Apple Has No Expertise in Batteries


When asked if Apple's experience in batteries and consumer devices would allow the company to bring a different approach to an electric car, Mr. Lutz scoffed, saying:

No, no. First of all, Apple has no expertise in batteries. They don't make batteries. The specialized electro-chemical companies make batteries, and Apple's going to buy batteries like everybody else.

And when it comes to actually making cars, there's no reason to assume that Apple, with no experience, will suddenly do a better job than General Motors, Ford, Volkswagen, Toyota, or whomever. I think this is going to be a gigantic money pit.

Did you catch that first bit? About Apple having no expertise in batteries? That's key. From Mr. Lutz's viewpoint, automakers make cars and drivetrains and engines/power stations and whatnot, and then they buy some batteries and plunk them in a car, name it electric, and call it a day.

That's not how Apple works, though. In mobile devices, Apple has led the way in power management. By controlling the software and the hardware, Apple is able to micromanage power consumption in a way that no competitor can touch. In this way, Apple is precisely an expert in batteries, or rather battery management, and this is absolutely something the company can bring to bear on an electric car.

Apple has also worked hand in hand with battery makers to do some amazing things with how it deploys batteries in its devices. MacBook is one such example (AppleInsider has a solid breakdown on MacBook power innovations), but so are its iPhones and iPads.

Apple MacBook Exploded View

MacBook Exploded View

Mr. Lutz is betraying not only his own inability to think outside his own car-shaped box, he's also betraying a massive amount of ignorance in how Apple does business.

To be fair, not all of the industry is so dismissive of Apple. Carlos Ghosn, CEO of the Nissan-Renault Alliance, has said that Apple's entrance to the electric car market will raise awareness and be good for his company. Apple and Google both were also the talk of Frankfurt Motor Show, though neither was in attendance.

But when a chorus of the old guard is emphatically telling us you can't make money in their industry, it's a clear bellwether that industry is ripe for disruption.