The margins for contract manufacturers are notoriously thin, but there are other benefits from jobbing for Cupertino.
From Stephen Wilmot’s “Making an Apple EV Is a Poisoned Chalice for Car Companies” ($) published in Tuesday’s Wall Street Journal:
For all the glamour—and potential manufacturing volumes—of being associated with an Apple-branded car, the almost $15 billion gain in Hyundai’s market value since Thursday’s close is hard to justify. Besides the risks that the talks come to nothing, or that any project drains cash for longer than expected, contract manufacturing isn’t an especially attractive business.
Canadian supplier Magna International, which is also seen as a potential partner for Apple, assembles vehicles under other brands, notably the Jaguar I-Pace, an all-electric sport-utility vehicle. The activity hasn’t been very profitable. Magna’s “complete vehicles” division reported operating margins of 2.1% and 1.1% in 2019 and 2018, respectively, lower than at its parts businesses.
So why are some established car makers now offering to make EVs for potential rivals? Beyond Hyundai’s talks with Apple, General Motors agreed to make a pickup truck for U.S. startup Nikola last year, before that part of the deal unraveled amid revelations that Nikola founder Trevor Milton exaggerated the company’s technology.
In GM’s case, the arrangement was a way to spread the cost of its EV technology over a broader base of vehicles, whether or not they bear a GM brand, and to pave a new growth path. Hyundai, which unveiled its own EV platform last month, may be making a similar calculation in its talks with Apple, which could be much more consequential. Both car makers have come to be seen as forward-thinking and their stocks have risen close to previous records.
My take: Apple squeezes its suppliers as hard as it can, but in return the suppliers get an inside look at Apple’s IP.
https://youtu.be/fn3KWM1kuAw
Why become “just a contract mfg’er?” Look at TSMC and Apple as a model – works great.
Apple could help Hyundai make massive investments to become the world’s best car maker. The car industry today is fragile. It is subject to cycles, competition in every category, and a hodgepodge of sub contractors and components. It is very tough to upgrade car technology when so much of the tech is NOT owned and controlled by the car maker.