Former GM Vice Chairman Bob Lutz: Apple Car ‘is going to be a gigantic money pit’

On CNBC’s “Closing Bell,” on Monday, former GM Vice Chairman Bob Lutz discusses why Apple shareholders shouldn’t be excited about the company’s development of an electric car.

CNBC: Is Apple doing he right thing here entering this market?
Lutz: Uh, no, I don’t think so. If I were a shareholder, I’d be very upset because they are currently engaged in a very high-margin business. The automobile business, at best, is a very low margin business and you can’t show me one company in th world that, to date. has made a nickel on electric cars. They are generally money losers and the only reason that everybody is producing them is because they are necessary to meet European fuel economy regulations and US fuel economy regulations. But there is absolutely no reason to assume that Apple is going to be financially successful in the electric car business.

CNBC: Do you think [Apple] will be able to bring some sort of approach to it, given their experience in batteries and consumer devices that’s at all going to change the economics of this in the next couple of years?
Lutz: No, no, abso… First of all, Apple has no expertise in batteries. They don’t make batteries. The specialized electrochemical companies make batteries. And Apple’s going to buy batteries, like everybody else. And when it comes to actually making cars, there is no reason to assume that Apple, with no experience, will suddenly do a better job than General Motors, Ford, Volkswagen, Toyota, or Hyundai. So, I think this is going to be a gigantic money pit. But, then it doesn’t matter. I mean, Apple has an embarrassment of riches. They don’t know where to put the cash anymore. So, if they burn $30 or $40 billion in the car business, nobody’s going to notice.

CNBC: Would it be feasible for Apple to have another company manufacture vehicles for them?
Lutz: Well, yeah, they could. They could get Hyundai-Kia or a Japanese or a Chinese manufacturer to manufacture cars for them and then they would put all of their software and their interconnectivity in it afterwards. But, I don’t see the… I don’t see the advantage to that… An electric car is, from a cost standpoint, the toughest way to go and, by the way, the electric car market is still miniscule. That just doesn’t make sense… One of the thing they probably hope to do with their electric vehicle is to sell the electric vehicle credits to other manufacturers who need them. And currently for Tesla, that is the only large sustainable source of revenue that Tesla has. I mean, they’re losing a ton of money on the cars. So maybe that’s the calculation, but, I’ll tell you what, if I were a board member of Apple, I would ask some serious questions about this whole thing.

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Direct link to video here.

MacDailyNews Take: The man worked for General Motors. He has sclerosis of the brain. (It’s a condition of employment at GM). This guy’s thinking is so in-the-box, his head ought to be gift wrapped with a bow on it.

We transcribed this interview with a dinosaur because we wanted it for posterity and because it reminded us so much of this:

We’ve learned and struggled for a few years here figuring out how to make a decent phone. PC guys are not going to just figure this out. They’re not going to just walk in.Palm CEO Ed Colligan, commenting on then-rumored Apple iPhone, Nov. 16, 2006

And this:

I give [Apple] two years before they’re turning out the lights on a very painful and expensive mistake.David Goldstein, Channel Marketing Corp. President, commenting on Apple’s opening of retail stores, May 21, 2001

Lutz: “I don’t see…” That much is certainly true.

Lutz’s asserts that “Apple has no expertise in batteries,” however:

To make all-day batter life possible, we have developed new battery technologies. We actually changed the construction and internal chemistry of the cells which are now manufactured in discrete sheets. These sheets are stacked in a terraced structure developed along with the external enclosure. The design allow for 35% greater battery capacity.Jony Ive, Apple’s Chief Design Officer, March 9, 2015

Lutz’s “idea” that Apple would simply shove their software into cars afterwards is a pure ignorance, or at least a fundamental misunderstanding, or how Apple works and what makes the company a success. Hardly surprising coming from a dinosaur who worked at shit-box maker GM. Apple is a design-first, design-centric company. Everything is focused on making the designer’s vision happen. The designers run Apple. They don’t sit around waiting to stick chrome moulding all over badly-made shit-boxes twenty years after it’s become passé.

Lastly, who said Apple is going to make an “electric car” as people like Lutz think of them today?

As we wrote back in March: When Apple enters markets, it’s because they can bring something(s) so unique to the table that significant disruption is inevitable.

Don’t just think “electric car,” when there’s so much more possible than what’s out there today. Think hydrogen fuel cells.

Apple doesn’t enter markets simply to compete with the rest of the existing dreck. Apple only enters markets when they can disrupt them. See: Palm, BlackBerry, Nokia, etc. In other words, it’s never too soon to start praying for more government bailouts, GM et al.

When Apple looks at what categories to enter, we ask these kinds of questions: What are the primary technologies behind this? What do we bring? Can we make a significant contribution to society with this? If we can’t, and if we can’t own the key technologies, we don’t do it. That philosophy comes directly from [Steve Jobs] and it still very much permeates the place. I hope that it always will.Apple CEO Tim Cook, March 18, 2015

SEE ALSO:
Apple speeds up electric-car efforts, aims for 2019 ‘ship date’ – September 21, 2015
Apple meets California DMV officials to discuss ‘autonomous vehicle’ – September 18, 2015
Documents confirm Apple is building self-driving car, Project Titan further along than many suspect – August 14, 2015
Apple Car development proceeds apace – July 27, 2015
Apple hires veteran Fiat Chrysler auto industry executive – July 20, 2015
What’s up with Carl Icahn’s sudden obsession with the Apple Car? – May 18, 2015
Survey: 77% of hybrid or electric vehicle owners would likely buy an Apple Car – May 13, 2015
Apple’s ‘Project Titan’ could reshape the auto world – February 22, 2015
Apple Car: Forget ‘electric,’ think hydrogen fuel cells – February 20, 2015
Meet Steve Zadesky, the reported leader of Apple’s ‘Project Titan’ – February 17, 2015
Forget the rumor: Apple will never build cars – February 17, 2015
The real battle Apple is waging in autos – February 17, 2015
O’Leary: Yes, give me the Apple car – February 17, 2015
Will Apple become a car maker or a platform/content aggregator? – February 17, 2015
An Apple Car is exactly what investors want – February 17, 2015
Apple’s electric car dreams may bring auto industry nightmares – February 17, 2015
Jean-Louis Gassée: The fantastic Apple Car is a fantasy – February 16, 2015
Apple is already positioned to be a car company in many ways – February 16, 2015
Why Tim Cook would want to build an Apple Car – February 14, 2015
Apple working on self-driving electric car, source says – February 14, 2015
Apple’s project ‘Titan’ gears up to challenge Tesla in electric cars – February 13, 2015
Apple’s next big thing: The Apple Car? – February 13, 2015
Apple hiring auto engineers and designers – February 13, 2015
Apple working with Intelligent Energy on fuel cell technology for mobile devices, sources say – July 14, 2014
North Carolina regulators approve Apple’s 4.8-megawatt fuel cell facility at Maiden data center – May 23, 2012
New aerial images of Apple’s planned NC fuel cell, solar farms published – April 7, 2012
Apple’s massive fuel cell energy project to be largest in the U.S. – April 4, 2012
Apple patent application reveals next-gen fuel cell powered Macs and iOS devices – December 22, 2011
Apple patent app details highly-advanced hydrogen fuel cells to power portable devices – October 20, 2011

67 Comments

  1. The one thing Apple is well known for is its ability to pivot; to turn on a dime, without much regard for ‘legacy’. Testaments to this are (among many other things):

    68k to PPC architecture (they gave it a few years and discontinued support for legacy 68k code);
    System 9 to OSX (they gave dual boot, then the Classic emulation, then discontinued it)
    PPC to Intel (they gave Rosetta emulation, then a few years later, discontinued it)

    They have consistently entered markets where they had no prior expertise and completely disrupted them.

    I’m still not sure if Apple is indeed working on a car (electric, driverless, whatever). If they are, it will be with a very healthy profit margin, unlike any other car, and will be the most coveted model on the market.

    The iPhone cost over $800 when it first came out, when competition was half the price. So did the iPad, and the Apple Watch. Expect Apple car to cost twice the “comparable” (very relative term) model from the competition. And expect it to outsell everyone else.

    1. And it certainly won’t be POS ugly fiberglass bloat.

      Would be nice if liquid metal might finally made its Apple debut or like the Delorean, Apple changed the exterior landscape…

      1. Considering its dramatically rubbish dynamics outside of time travel anyway, I’m not sure the DeLorean is a good basis for positive lessons … Other than to prove ex GM execs are the last people to listen to when talking about the future of cars.

        1. Delorean is a stainless steel car that does not rust, design wise it was ahead of its time and it broke all the automotive industry rules.

          You should read ‘On a clear day you can see General Motors’ ( the fascinating story of Delorean and the fabricated witch hunt against him.

    2. Your examples are all consumer electronics.
      Cars are not consumer electronics.
      Moving from one IC architecture to another or one operating system to another cannot be compared to building a car from scratch.
      Apple has only disrupted markets in their field – consumer electronics.

      1. That is a reasonable argument, but I’m pretty certain Tesla never dealt with automotive industry before plunging head first, and they seem to be doing quite well (all things considered). Apple has massive amount of resources that can buy whatever experience may be necessary.

        As far as being an insider in the industry being an advantage, I’m not really sure that is going to matter to Apple; they were most effective as the disruptive force when they entered as outsiders (music, mobile).

      2. Cars are not YET consumer electronics, but that is the direction they are headed. Electronic cars are vastly less complex hardware-wise, and offer considerably more power. Energy density and cost are the only reasons they haven’t become mainstream yet.

        Building a car from scratch may be difficult, but I put my money on Apple figuring out the hardware, well before the car manufacturers figure out the software. It won’t even be close.

    3. There’s no end of people, with not a clue as to what Apple is actually working on, loudly proclaiming that Apple is building a car (of some type).

      Personally I do not see Apple entering a market that requires so much capital, and only generates an average 6% operating income (compared to Apple’s +10 year 31% average).

      There are other industries/markets larger than automotive (devoid of governmental regulation) that can generate more revenue, more gross margin, and much more Net Income than making a car (no matter how advanced).

      1. Right, as usual. Apple—like Thomas Edison, another hotbed of innovation—burns through project after project before presenting a winning product. The difference between them? :— The insane parasitism of today’s media, and their lapdog analysts: so desperate to earn a living wage that they prey on readers’ psychological fears more blatantly than did their forebears in the century-past era of Yellow Journalism.

    1. Not to forget, Lutz blew a ten year EV lead by killing GMs EV-1 project and selling the IP rights to large-format NiMH batteries to Chevron, who never built any batteries and refused to license the technology, effectively shutting that door for battery development.

      The nice thing about technology is eventually the nay-saying fossils die off and the real possibilities come forth. Tesla cracked the egg on BEV cars and its never going back into the shell. A lot of money is going to be made refitting the worlds automobile fleet with BEVs. A lot of money is going to be lost trying to retain the existing paradigm.

      Apples rumored acceleration of their EV release date seems to coincide with Teslas plans for the Model 3. Maybe they’re going after the same space.

    2. Exactly, Old Swinger! Nokia, Motorola, and Palm said similar things about Apple’s R&D investments in the iPhone, and that effort turned out to be fairly successful.

      There is no guarantee that Apple will ever develop or market a branded car, of course. Some R&D ends up at a dead end or yields a bit of knowledge that leads off in an entirely different direction. Most likely, in my opinion, is that Apple is looking at the car from a user/system viewpoint and trying to figure out how to make the car satisfy the needs and desires of the passenger. Apple’s solution may be fairly generic in the sense that they could license it to any automaker and not have to build their own vehicle.

    3. In his defense, that’s what he’s expected to say. Downplay the threat, try to point out the differences between his marketplace and the ones Apple has entered & disrupted. Unfortunately for Mr. Lutz, his company’s outstanding stock is less than a quarter of Apple’s cash, which means his executive suite could be the next arena Apple disrupts if there really is a plan to build an Apple car.

  2. Most phone manufacturers are finding that selling phones is a money pit.
    Most desktop PC manufacturers are finding that selling PCs is a money pit.
    Most laptop manufacturers are finding that selling laptops is a money pit.

    Apple makes heaps of money out of all three of those categories while established companies can’t.

  3. There are two fundamental components to an electric car: the energy storage technology (battery or fuel cell) and the motor technology. Both are up against fundamental physical limitations, and Apple will not get a free pass on the laws of physics.

    The contribution that Apple could make is the force the standardization of components such that they are interchangeable across manufacturers and develop some of the electronic components.

    1. Apple will also not get a free pass from any competitor out there, in addition to the normal items cited against the project.

      I understand Apple has decided the “iPhone effect” is terrific and they think they can enter the auto business in the same way with high priced, high margin vehicles.

      At least a few other car makers could decide to follow Apple and do the same, and they have the dealers and marketing to take high margin customers away from Apple.

      The concept that Apple can innovate a new better solution that lowers costs has not been what Apple has done. Hence, I don’t see Apple doing what a hundred other battery design teams have tried to do in designing a new cheaper, better battery from scratch. Not impossible, but not likely.

      It is anything but a forgone conclusion that Apple can pull this off. That is the risk of innovation.

      1. Apple has better brand recognition than any automaker and it won’t have any dealers acting as profit sucking middlemen.

        Not only do I expect them to have powerful and reliable electric motors, powerful batteries and great electronics UI throughout, but I expect that Jony’s design team and engineers will fundamentally rethink how the chassis is manufactured. They will manufacture major components in a way that no one has done before.

        Example: Who would have thought of manufacturing a computer casing out of a solid block of aluminum? No one because, well, it was crazy expensive right? But they did it and, it was the strongest laptop chassis out there and had so much functionality machined into it that the number of parts and manufacturing steps was greatly reduced. The laptops ended up being super profitable.

    2. You and Bob Lutz are making the same mistake the cell phone makers made – the fundamental component for cars will be the computer.

      Before the iPhone the emphasis was on placing calls. Now we all carry extremely personal computers(be they iOS, ‘droid or other) that can be used to make a phone call.

      Cars are in the same transition, they’re becoming computers on wheels that will do more for you than the cars that came before. The computers are already taking over bits and pieces of the driving with things like cruise control that changes the speed of the car in reaction to the speed of the car ahead of you.
      https://en.wikipedia.org/wiki/Autonomous_cruise_control_system

      1. Darrell, I agree with your post to a large extent. Where I differ is that, while the car is becoming a computer on wheels, it does not need to be a standalone computer. Apple is focused on mobile computing and the IoT. Increasingly, people possess computing resources and an online identity that travels with them and syncs with a variety of computing resources during their day. In that context, cars are simply a more complex form of an appliance with embedded computing and internet connectivity. That is why desktop computer sales are slipping relative to laptops and such. Unless you need workstation performance/storage or want a centralized media hub, people increasingly prefer mobile options. That is why Apple needs to get iCloud squared away. When it works properly, it removes most of the aggravations of a mobile computing experience.

    3. We barely understand the laws of physics. Human knowledge and understanding has barely scratched the surface.

      I bet you would do well in the 1800’s good old boys club… “We have learned everything possible, there’s nothing left to learn.”

      That’s what this is all about, such rigid thinking, as to be unable to get passed the edge of the forest.

      You don’t know what you don’t know, until you know it. 🙂

      1. Gollum—ever the sceptic, and eagle-eyed at that! All the decorated and accomplished scientific heroes of the past have said what you have said: it isn’t over, it will never be over, because our native wit is profoundly exceeded by the complexity of the cosmos that contains us…we are scarcely more than an impudent mote, however wiggly and hopeful.

  4. You can see the vacant look on his face – no imagination. Sock-puppet of the oil and gas industry.

    The out-dated ideas of the industrial age must give way to something much more enlightened. Though not perfect, I am glad for the influence of individuals like Steve Jobs and Elon Musk who go against the grain and seek to make a dent in the world for good. “The crazy ones…”.

    1. That’s what I was thinking – at the very least Bob “Can’t Do” Lutz is the poster child of who NOT should be in charge or making decisions on electric/hydrogen cars and the future of transportation. He’s thinking INSIDE the last century box and the same old same old has-been. Is it any wonder this technology has mostly been moribund at the big U.S.Automakers who’s heart isn’t into disturbing the status quo? The old CEO’s gotta go, the Peter Principle just kicked them in the shins.

      Lutz The Klowny Klutz. Lutzi Luddite.

  5. I think Lutz may have a point…there are so many regulatory, union, and safety issues when it comes to cars. Tesla tried to come in and disrupt things and look how they’ve become mired in dealer / support / manufacturing issues. It can be done but I think Apple should be very careful.

    1. I met him about 20 years ago, extremely talented individual, he tended not to stay long with the companies he worked for because he has a very low BS tolerance. There are tons of that in any bureaucracy , corporate or government organizations, no real difference although a distinction is that corporate has to perform better, faster and quicker in order to survive. most actually don’t survive. Not true in government bureaucracies. Some of you will obviously disagree, but….. I spent 20 years in automotive from dealer level to national offices for two companies. On a scale of 1 to 10 building, marketing, and servicing cars being a 10 for comparison, computers somewhere between 2 and 4. Add in the problem of electricity supply and other problems of chemistry, and physics: Well, good luck with that. Tesla hasn’t sold nearly enough cars to know what they will experience down the road to know what they will be facing in the dealer/support/manufacturing areas if they ever sell more than a few thousand cars a year, not a clue.

    2. What dealer issues? The only issue is that they’re breaking the paradigm of a dealership network and some (Republican-led) states are trying to prop up their donor friends that own dealerships from the legacy auto industry. Tesla has already won this tussle. High correlation between states that aren’t allowing Tesla showrooms and states that didn’t accept ACA Medicaid Expansion money.

      What service issues? In the (reportedly infrequent) need for unscheduled maintenance, a guy shows up with a rental car for the owner to use, they haul the dysfunctional car away on a flatbed and bring it back a few days later, freshly detailed and working flawlessly. Tesla makes roadside calls. Dealerships don’t.

      What manufacturing issues? Tesla makes all they can sell and have a multi-month waiting list. That’s a good thing. They make more cars every month than they did the month before. That’s a good thing. They have zero inventory sitting on a dealers lot that they hope to sell someday without too much discount. That’s a very good thing.

      Where is this mire of which you speak?

      Lutz is a has been that blew it big time. GM will never recover from his short sightedness.

      I will give you there is some concern that Teslas robotic manufacturing workers may unionize. Even Elon Musk worries about that.

  6. When it comes to all thing Apple, it never ceases to amaze me that the “experts” in any given field simply refuse to learn from the idiotic quotes made by “experts” in other fields. Ballmer, Colligan, Goldstein, Baslisle (sp?), the “once upon a time” chair of Nokia….all made ridiculous fools of themselves by short-sighting Apple. Here’s another to add to the pile.

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