What's Happening With Apple's Car?

By Markets Fool.com

Image source: Apple.

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Well, that was fun while it lasted: A spokesperson for McLaren Technology Group has denied a Financial Times report that the supercar maker has been in talks with Apple (NASDAQ: AAPL) about a potential buyout.

"We can confirm that McLaren is not in discussion with Apple in respect of any potential investment," the McLaren spokesperson told Reuters.

Of course, that statement doesn't rule out the possibility that Apple has approached McLaren in the past, and might still be interested. It's just the latest in a growing list of reports that hint at the progress and scale of Apple's mysterious car project.

What we (might) knowabout the Apple Car

Here's some of what we think we know about Project Titan, Apple's secretive effort that might be working on a new kind of car.

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It's a big project. Apple has leased several buildings in Sunnyvale, about 10 minutes from its global headquarters. The buildings are said to be protected by heavy security, and neighbors have reported deliveries of high-end cars to the facility, along with occasional strange loud noises.

It's not quite as big as it was a year ago. The original leader of the project, Steve Zadesky, left Apple in January. He was succeeded by longtime Apple veteran Bob Mansfield. "Dozens" of people working on the project have reportedly left Apple since Zadesky's departure, suggesting Mansfield may have made a significant change in strategy.

Apple might have given up on developing a full-blown car. Some reports have suggested that Mansfield has refocused the Project Titan team on developing a system that can be integrated into cars built by others. The system might combine self-driving capabilities with Apple's information and entertainment technologies, integrating the car into Apple's existing device ecosphere.

Apple seems to be looking for an automotive partner. McLaren isn't the first automaker Apple has approached. Previous reports have suggested that senior Apple executives have held talks with both BMW (NASDAQOTH: BAMXF) and Mercedes-Benz's parent Daimler (NASDAQOTH: DDAIF).

Why would Apple want an automotive partner?

Here's why: Profitably building cars to global standards of quality is really, really hard.

Yes, Apple has some serious manufacturing expertise, and yes they've done a brilliant job of orchestrating massive new-product launches involving millions of fiendishly complicated iPhones and iPads.

But cars are different. Apple with its vast cash hoard wouldn't be daunted by the huge capital investments needed to set up a high-volume automotive production line, but it might be daunted (at least a little bit) by all of the arcane, specialized expertise needed to deliver those cars at those global standards of quality while still turning a profit. My guess is that's why Apple has been exploring the idea of enlisting a partner (or acquiring a company) that already has that expertise.

I don't doubt for a minute that Apple could build a great car. But Apple executives have surely been watching Tesla Motors' (NASDAQ: TSLA) efforts to ramp up to mass production of its vehicles, which haven't gone smoothly. It's possible CEO Tim Cook simply decided the company would be better off outsourcing that particular set of headaches.

Why might Apple give up on the idea of creating a car?

The company may simply have come to grips with the challenges of delivering a compelling product against strong, well-entrenched incumbent competition. While Apple's computer hardware and software expertise translated well to phones, cars are a bigger leap: Knowledge gained from creating Macs and iPhones doesn't provide much insight into, for instance, creating great-handing suspension systems, or ways to dissipate the energy of a collision.

The big question about an Apple Car

Perhaps the biggest question around the idea of an Apple Car has always been, how would Apple generate Apple-like margins on a car? There are no carriers to subsidize a car purchase, and while plenty of people of ordinary means are willing to save up for $700 iPhones, asking them to save up for $80,000 Apple Cars is a whole different thing.

That, in the end, may be the question that determines the future course of the whole project.

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John Rosevear owns shares of Apple. The Motley Fool owns shares of and recommends Apple and Tesla Motors. The Motley Fool has the following options: long January 2018 $90 calls on Apple and short January 2018 $95 calls on Apple. The Motley Fool recommends BMW. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.