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. Actually Bob Lutz worked at Ford, Chrysler, GM and BMW. He is not stupid by any means.

    A car is ill advised unless they have some uber secret thing nobody else has figured out.

    The ground is filled with corpses of car maker wannabes and shuttered operations. There is also a huge capacity glut for luxury cars- the only part of the market that has the kind of margins Apple usually expects.

    1. When Apple announced the iPhone, people kept saying, smartphones occupy a niche, and that dumb phones sell a lot more. But the game changed. Electric is the future. If Apple is getting involved, they’ve done their home work.

  2. The auto industry is a $2 trillion market. It is in the throes of a huge technology change. The industry is dominated by obsolete companies, management, and thinking. The industry is also tied to dying technology, plants, infrastructure, labor contracts, and distribution channels. It is perfectly ripe for Apple to step in with a revolutionary product featuring insightful thinking, design, and performance, and producing a superior “user experience”. If anyone can do it, I would put my money on Apple over Tesla, Google, and any existing car company.

    The Internal Combustion Engine (ICE) is rapidly becoming obsolete as the market shifts to electric vehicles. It is just a matter of time. No car company is betting the future on ICE, according to Levi Tilleman who wrote, _The Great Race: the The Global Quest for The Car of the Future_ (Simon and Schuster). When the book was published in January 2015, there were already about 15 electric or hybrid-electric vehicles for sale in the US.

    Incidentally, GM had some EVs when California made them do it, but GM destroyed them all as soon as they could, even when drivers begged GM to let them buy the cars (which were leased). So GM totally blew any lead they had at that time.

    Most people do not know that burning 1 pound of carbon produces 3.67 pounds of carbon dioxide (CO2). It is basic chemistry so you can look it up for yourself. (Hint: don’t forget to add the weight of 2 oxygen atoms for every 1 carbon atom that make up CO2.) As 1 gallon of gas contains 5.5 pounds of carbon, burning 1 gallon of gas produces 20 pounds of CO2 when burned …even though we don’t see it because it is invisible, odorless, and tasteless. But CO2 does 2 things very well: traps heat in the atmosphere and causes acidification of oceans when absorbed by water.

    The impact of burning carbon and producing huge amounts of CO2 is meaningful, given the relatively small amount of CO2 that exists in our atmosphere to begin with: CO2 accounted for only 280 parts-per-million (ppm) of the atmosphere before the Industrial Revolution. Humans burning huge amounts of carbon and producing staggering amounts of CO2 (at a multiple of 3.67!) has increased our atmospheric CO2 concentration by about one-third in the past 150 years, which is a meaningful amount. It explains how humans are contributing to planetary warming and causing oceanic acidification (our oceans absorb about ⅓ of atmospheric CO2), with huge adverse effects on the planet’s ecosystems. So things must change. And EVs and hybrid-EVs are here and growing. I saw the first electric truck was introduced in Europe recently, too.

    e-cars have fewer moving parts than ICE cars, so should be easier to build and maintain. They should last longer, too. And even today, let alone tomorrow, cars already have a huge software component, which plays to Apple’s strength. (Is anyone else impressed with how Apple has improved device performance and battery life …simply through its software innovations? I, personally, think it is incredible.)

    Cars of the future may not require traditional car dealers. An Apple car store would be well worth designing from scratch. I can picture a high-tech glass pavilion from which a few great car models are sold, each of which can be easily customized (sort of like the Apple Watch approach to few products in the line, with huge customizability).

    Does anyone care that GM sells 1-in-every-10 cars on the planet? I mean, is GM in your stock portfolio? Didn’t think so. It is a mistake for anyone to think that Apple needs to match size, or wits, or whatever with the existing car manufacturers. All Apple has to do is what it always does: design one awesome product in the category that is so insanely great that discerning people want it.

    Apple cannot afford NOT to make a bid in The Great Race to design, produce, and sell the car of the future. They are better suited than most companies, including existing car companies, to do this.

    1. Tom H – What a great informative well balanced comment. Apple has proved time and again it can and will enter new markets and dominate through exciting innovation. Design led. Not sales driven. I am amazed at the sheer blind arrogance and hypocrisy of some of these “experts”.

      Bob Klutz will rue the day he said this drivel. Reminds me of this…

      http://daringfireball.net/2006/11/colligan_head_stuck

      now…about those diesel emissions:P

  3. What a jackass. Apple didn’t have experience in the mobile phone business in 2007. Look at them now. And why ask this guy anyway? His company had to be bailed out the the taxpayers! Union goons drove GM to the brink of bankruptcy, and guys like Lutz were too cowardly to put them in their place.

  4. Apple’s greatest challenge will, be in the end, NADA (National Automobile Dealers Association). Thanks to Henry Ford, who forced them, during the Great Depression, to buy his entire production output, they lobbied heavily and got state laws on the books that prohibit car sales unless through a ‘franchise’ model (i.e. a dealer). Tesla is fighting an uphill battle against a very deep-pocketed NADA, and states are, one by one, passing (or amending) laws restricting direct-to-consumer sales (ostensibly, “protecting consumers”).

    The amount of dealers’ power over auto industry is absurd. Automakers can’t open their own dealerships, they cannot shut down a brand unless all the dealerships for the brand agree to go out of business, or agree to sell their business to the automaker. Oldsmobile was a good example, costing GM over $1B in payouts to dealerships, and they still had to fight many lawsuits. It is now illegal in most states to sell cars online, unless the online retailer has a physical franchise dealership in the state.

    Automobile retail industry is the cancer of the auto industry. Dealership protection laws (the ‘Franchise Laws’) are adding untold billions of unnecessary middleman cost to the industry. Cars would be cheaper and easier to buy if automakers were allowed to sell directly.

    1. The franchise dealership model is a value subtracter in many instances and it is a discriminatory system as non-white and lower middle class buyers typically get less favorable deals when negotiating.

    2. Predrag wrote: “Apple’s greatest challenge will, be in the end, NADA (National Automobile Dealers Association).”

      Apple reps have been spending lots of time in Washington DC lately. One sign that Apple is serious about a car will be legislation attacking the car dealer requirement. Californian politicians in the Senate and Congress will have a huge incentive to introduce such legislation – Tesla, Apple, etc.

  5. How predictable was that??
    The moment I saw Lutz in the title I knew there’d be howling from the MDN crowd.
    Sorry chaps, Lutz is absolutely correct, on every point.
    1. Not one car company has made money on EVs. Tesla is losing $4k on every car sold. Look it up. What does THAT tell you? Market leader Nissan is also losing money on every Leaf.
    2. Tesla excepted, EVs are only being produced to satisfy eco regulations.
    3. There is no reason to think that Apple can switch from electronics to cars and make it work. None. The iPhone, iPad and Watch are still devices, so the tired old ‘they’re not going to just walk in” quote from a decade ago is irrelevant. Cars are not small electronics that can be built for a dime in China.
    4. MDN’s question, “Who said Apple is going to make an “electric car” as people like Lutz think of them today?” is amusing. Nobody has said anything of the sort, Lutz included. Apple is mum, the press gets wind of Apple talking to car people and hiring car people and boom, we’ve got the iCar.

    THE only way for Apple to bring something new to the car market is for them to be quietly sitting on some amazing new battery tech. What else? Composite materials? Remarkable aerodynamics? Autonomy? Yawn.

    I’d love to be wrong here but I’m going to “iCal” this one right now and be back if/when iCar hits the streets having burned through $30b or so of Apple’s cash.

    1. There’s a huge difference between losing $4K on every car and spending more than the profits are currently covering. A look at Telsa’s Income Statement:
      https://www.google.com/finance?q=NASDAQ:TSLA&fstype=ii

      Current quarter has (in millions):
      $954.98 revenue
      $741.61 cost of revenue
      ———————
      $213.37 gross profit

      So they are making a profit on the cars they sell. The thing is they’re still in startup mode and thus are spending more than their profits are bringing in. That money’s going to things like:
      1) ramping up production of the Model X
      2) developing the Model 3
      3) building the Gigafactory
      4) expanding their supercharger network

      Another way to look at it:
      1) You run a small cookie bakery
      2) Your first quarter you sold 10,000 cookies
      3) Your profit was $20,000
      4) Your cost was $10,000
      5) Your gross profit was $10,000
      6) You borrowed $100K to build a bigger bakery
      7) The media spins it that your bakery lost $90 per cookie sold.

  6. Apple needs new fields to conquer.

    Perhaps a car is just the first step.
    The future of tech are intelligent machines: robots and their kin .
    Those who think they even electric cars are ‘too complicated’ aren’t going to own that future.

  7. First, what most people don’t get it is that ONLY Apple has high margins in their hardware market segments. NO ONE else has Apple’s margins in personal computers, mp3 players or smartphones. NO ONE. Samsung made good margins for a couple years but has now fallen back into the typical pack. So, for those who think Apple is entering into a low-margin business does not understand that ONLY Apple knows how to make high margins in hardware in their business segment.

    Second, Apple is not going to build an internal combustion gas engine. An electric car simply needs controls to move the wheels at varying speeds and then be able to stop. That is ALL. Everything is handled by software. The rest are OFF THE SHELF parts. The hard part was the engine and transmission – NO LONGER NEEDED (well, in the combustion sense of mixing air/gas and driving pistons). An electric car is just software and batteries. Look at Tesla. They can simply download software that makes your car go faster. Can GM do that? No. The rest of the car is simply comfort and safety.

  8. http://my.teslamotors.com/sv_SE/forum/forums/where-can-tesla-sell-cars

    Most states — 26 — allow Tesla direct sales to consumers. These include the entire West Coast: CA, OR, WA; plus ID and CO. It also includes NY, MA, and FL (among others) on the East Coast. And a number of states in the midwest and southeast. My guess is that about 60%, or maybe a bit more, of the US population could buy a Tesla in their state today if they wanted to, since populations are highest on the coasts.

    24 states disallow direct sales at present, but Tesla is fighting 2 of these states (looks like New Mexico West Virginia). These may be precedent-setting cases, after which other states may have little choice but to revise their anti-competitive laws ?

    In any event, this sort of “strategic game” scenario suggests it is just a matter of time before “NO” states change their laws. People who really want a Tesla will buy it in another nearby state. People in NJ can simply buy their Tesla in NY or PA. And maybe Tesla can work around some states’ laws against direct sale to consumers by “leasing” their vehicles instead.

  9. Elaborations on already elaborate RUMORS.

    And we’ve heard all the Apple DOOM predictions a few dozen times before. Knowing Apple’s entrepreneurial attitude, I seriously doubt they’d allow themselves to fall into a ‘money pit’. They did that circa 1996 and suffered a hard lesson.

  10. This MDN Take is typical of their middle school mentality. Yes, let’s mock and ridicule someone who has spent his entire life in the industry because he dares to question the night and wisdom of Apple.

    And then the majority of the commenters here follow suit like mind slaves to the totalitarian groupthink.

    Nobody knows for sure if Apple is building a car or how they would even go about doing it. But hey, let’s use this as another reason to reaffirm our bona fides as the biggest loudmouth dopes in the room.

  11. We are not slamming Lutz because he dares to be critical of Apple. We are critical of Lutz because we think he is wrong. There is nothing wrong with that, is there? A lot of comments are fairly reasonable, not sophomoric. In any event, I take it you disagree. Fine.

    If Apple were to attempt to do what GM did, yes it would be a money pit and Bob Lutz is probably right. But why in the world would anyone in his right mind think Apple would try to emulate GM? Where’s Lutz been for the past 20 years?

    I am sure Lutz is right that no traditional car maker has made a nickel on EVs. Except see a post above about Tesla. But that does not mean there is not money to be made in EVs. It simply means GM does not know how to do it. Seems to me Lutz confirms that the traditional car makers are tied to the dying technology of gas engines. Confirms my view that the big car makers will not be the ones to revolutionize the car industry.

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