Why would Hyundai want to make cars for Apple?

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.

5 Comments

  1. Jerry Doyle said:
    I still have not ruled out the possibility that Apple will establish its own manufacturing plant the same as Tesla & produce an entirely vertical integrated system of fabrication from design, manufacturing, hardware & software. That would appeal to me more than Apple contracting with another established car manufacturer. It is a hope of mine, but I can see where Apple would want to move forward timely. Some individuals may disagree with me on Apple needing to get to market timely, but this is an area where Apple can’t arrive too late to the game. Folk have love affairs with their cars. Tesla is so far out front of everyone. Tesla owners, like Mercedes, BMWs, Audi, Lexus owners are not going to jump ship because Apple shows up years later with an Apple car. We are not talking about an iPod, iPhone, iPad. We are talking about loyal brand car customers. Even I, an Apple aficionado, am not going to walk away easily from a brand I have been with for thee decades who offers me a good competitive EV on the market with decent integrated technology and software. Car brands manufacturers recognize poignantly that technology integrated seamlessly into their vehicles is a “must” for demanding consumers; and they are making strides to achieve this for their customers.

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    January 12, 2021
  2. Steven Noyes said:
    I still don’t buy the idea of an Apple Car. While, in many regards, the automobile is the ultimate mobile platform, it seems like a high risk, low reward business.

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    January 12, 2021
  3. George Row said:
    In December 2020, Hyundai bought an 80% share of Boston Dynamics.

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    January 12, 2021
  4. Fred Stein said:
    Disclaimer: We’re all guessing here, eh?

    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.

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    January 12, 2021

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