Opinion: The Apple Car could run traditional automakers off the road
Published: July 29, two thousand seventeen 12:12 p.m. ET
VitaliyN. Katsenelson
Apple’s brand extends far beyond technology and coolness. The company has accumulated incredible goodwill with consumers.
So whenever Apple AAPL, +0.03% comes out with the Apple Car, it will grab a disproportionately large market share from General Motors GM, +Two.24% and other automakers precisely because of that deep well of goodwill. By the time my youngest child, Mia Sarah, who is almost two, learns to drive, internal combustion engines will likely be a relic consigned to museums (just like Ford’s Model T).
I had this “Aha!” moment recently when I visited a Tesla TSLA, -0.14% store and eyed its cars’ power train. It looks just like a skateboard — basically a vapid slab of metal (which houses the battery), four wheels, and an electrified engine the size of a large watermelon. That’s it — the Tesla has only eighteen moving parts.
Wall Street nowadays is going gaga over the stocks of auto dealerships (especially after Warren Buffett’s Berkshire Hathaway bought Van Tuyl Group) and automakers. I am in the minority in thinking that party will come to an end. Just like Tesla, Apple is not going to be using a dealership model to sell its cars. Just as with the iPhone, the company will want accomplish control of the buying practice.
If both Tesla and Apple bypass the dealership model, the GMs of the world will be at an even larger competitive disadvantage. They will have to abandon the dealership model too. Yes, I know, selling cars directly to consumers is not legal in many states, but if the U.S. Constitution could be amended twenty seven times, the law on car sales (which is an artifact of the Superb Depression) can be amended as well. The traditional dealership model is unlikely to get through anyway, as its economics dramatically degrade in the electric-car world. A car with few moving parts and minimal electronics has few things to break. Consequently, electrified cars will need less servicing, throttling the dealerships’ most significant profit center.
What is also amazing about electrical cars is that they aren’t that much different from smartphones. Smartphone prices have declined significantly because their components became ubiquitous and commoditized. The simpleness of electrical cars and the declining ambition of Tesla, Apple, and whoever else comes in that space to be known as a “car” company will likely lead to commoditization of components and thus lower prices. Tesla today is more a software and battery company than a car company.
Think back to the day when Apple introduced the iPhone. No one suspected that it (and the smartphones that followed) would enable a service like Uber, which is putting cabdrivers worldwide out of business.
The baby boomer generation romanticizes cars. Most boomers can recite the horsepower and other engine specs of every car they have ever wielded. For the tail end of Gen-X (my generation) and Millennials, a car is an interruption inbetween Facebook FB, +0.03% and Twitter TWTR, -0.30% . We know the brand of speakers in our car but if asked would have to Google its horsepower. We feel little romanticism for our cars and have much higher brand loyalty to Apple and Google GOOGL, -0.34% than to GM or Ford Motor F, +Two.90%
When Apple makes its entrance into the auto industry, it will likely be successful and very disruptive. After all, Apple has the much-needed software know-how to design a car. (Apple is already working with car companies on CarPlay, the iPhone-centered car infotainment system.) Apple boasts a global network of stores, possesses unlimited resources ($150 billion of net cash and $50 billion of free cash flows annually), and its imagination has not been bruised by decades of producing cars with internal combustion engines.
General Motors’ response to Tesla has been no different from Nokia’s response to the iPhone.
Let me stress that last point. There is a good reason why Nokia, which at one time was the superior cellphone manufacturer, failed to contest with the iPhone. It had too much institutional skill. Nokia had hundreds of engineers who attempted to add IQ to a dumb phone. The company was attempting to convert Symbian, a dumb-phone operating system, into a smartphone operating system. Despite Apple showcasing Nokia how the smartphone should look, the company couldn’t see its product as a smartphone but rather just as the next iteration of a dumb phone.
General Motors’ reaction to Tesla has been no different from Nokia’s response to the iPhone. GM came out with the Chevy Volt, which was indeed one of its internal combustion engine (ICE) cars with an electrical engine dumped in. Unless an ICE car company creates a silo unit isolated from the rest of the operation, it will be enormously difficult if not unlikely to get engineers who have designed ICE vehicles all their lives to switch their thinking and turn into electric-car engineers.
So, how does one invest in this overvalued market? Our strategy is spelled out in this fairly lengthy article.
Vitaliy N. Katsenelson is chief investment officer at Investment Management Associates in Denver, Colo.,and which holds a position in Apple. He is the author of “Active Value Investing” (Wiley) and “The Little Book of Sideways Markets” (Wiley). This article very first appeared on Katsenelson’s Contrarian Edge blog.
The Apple Car could run traditional automakers off the road
Opinion: The Apple Car could run traditional automakers off the road
Published: July 29, two thousand seventeen 12:12 p.m. ET
VitaliyN. Katsenelson
Apple’s brand extends far beyond technology and coolness. The company has accumulated incredible goodwill with consumers.
So whenever Apple AAPL, +0.03% comes out with the Apple Car, it will grab a disproportionately large market share from General Motors GM, +Two.24% and other automakers precisely because of that deep well of goodwill. By the time my youngest child, Mia Sarah, who is almost two, learns to drive, internal combustion engines will likely be a relic consigned to museums (just like Ford’s Model T).
I had this “Aha!” moment recently when I visited a Tesla TSLA, -0.14% store and witnessed its cars’ power train. It looks just like a skateboard — basically a vapid slab of metal (which houses the battery), four wheels, and an electrical engine the size of a large watermelon. That’s it — the Tesla has only eighteen moving parts.
Wall Street nowadays is going gaga over the stocks of auto dealerships (especially after Warren Buffett’s Berkshire Hathaway bought Van Tuyl Group) and automakers. I am in the minority in thinking that party will come to an end. Just like Tesla, Apple is not going to be using a dealership model to sell its cars. Just as with the iPhone, the company will want accomplish control of the buying practice.
If both Tesla and Apple bypass the dealership model, the GMs of the world will be at an even larger competitive disadvantage. They will have to abandon the dealership model too. Yes, I know, selling cars directly to consumers is not legal in many states, but if the U.S. Constitution could be amended twenty seven times, the law on car sales (which is an artifact of the Good Depression) can be amended as well. The traditional dealership model is unlikely to get through anyway, as its economics dramatically degrade in the electric-car world. A car with few moving parts and minimal electronics has few things to break. Consequently, electrified cars will need less servicing, throttling the dealerships’ most significant profit center.
What is also amazing about electrical cars is that they aren’t that much different from smartphones. Smartphone prices have declined significantly because their components became ubiquitous and commoditized. The plainness of electrical cars and the declining ambition of Tesla, Apple, and whoever else comes in that space to be known as a “car” company will likely lead to commoditization of components and thus lower prices. Tesla today is more a software and battery company than a car company.
Think back to the day when Apple introduced the iPhone. No one suspected that it (and the smartphones that followed) would enable a service like Uber, which is putting cabdrivers worldwide out of business.
The baby boomer generation romanticizes cars. Most boomers can recite the horsepower and other engine specs of every car they have ever wielded. For the tail end of Gen-X (my generation) and Millennials, a car is an interruption inbetween Facebook FB, +0.03% and Twitter TWTR, -0.30% . We know the brand of speakers in our car but if asked would have to Google its horsepower. We feel little romanticism for our cars and have much higher brand loyalty to Apple and Google GOOGL, -0.34% than to GM or Ford Motor F, +Two.90%
When Apple makes its entrance into the auto industry, it will likely be successful and very disruptive. After all, Apple has the much-needed software know-how to design a car. (Apple is already working with car companies on CarPlay, the iPhone-centered car infotainment system.) Apple boasts a global network of stores, possesses unlimited resources ($150 billion of net cash and $50 billion of free cash flows annually), and its imagination has not been bruised by decades of producing cars with internal combustion engines.
General Motors’ reaction to Tesla has been no different from Nokia’s response to the iPhone.
Let me stress that last point. There is a good reason why Nokia, which at one time was the superior cellphone manufacturer, failed to challenge with the iPhone. It had too much institutional skill. Nokia had hundreds of engineers who attempted to add IQ to a dumb phone. The company was attempting to convert Symbian, a dumb-phone operating system, into a smartphone operating system. Despite Apple displaying Nokia how the smartphone should look, the company couldn’t see its product as a smartphone but rather just as the next iteration of a dumb phone.
General Motors’ response to Tesla has been no different from Nokia’s response to the iPhone. GM came out with the Chevy Volt, which was truly one of its internal combustion engine (ICE) cars with an electrical engine dumped in. Unless an ICE car company creates a silo unit isolated from the rest of the operation, it will be enormously difficult if not unlikely to get engineers who have designed ICE vehicles all their lives to switch their thinking and turn into electric-car engineers.
So, how does one invest in this overvalued market? Our strategy is spelled out in this fairly lengthy article.
Vitaliy N. Katsenelson is chief investment officer at Investment Management Associates in Denver, Colo.,and which holds a position in Apple. He is the author of “Active Value Investing” (Wiley) and “The Little Book of Sideways Markets” (Wiley). This article very first appeared on Katsenelson’s Contrarian Edge blog.
The Apple Car could run traditional automakers off the road
Opinion: The Apple Car could run traditional automakers off the road
Published: July 29, two thousand seventeen 12:12 p.m. ET
VitaliyN. Katsenelson
Apple’s brand extends far beyond technology and coolness. The company has accumulated incredible goodwill with consumers.
So whenever Apple AAPL, +0.03% comes out with the Apple Car, it will grab a disproportionately large market share from General Motors GM, +Two.24% and other automakers precisely because of that deep well of goodwill. By the time my youngest child, Mia Sarah, who is almost two, learns to drive, internal combustion engines will likely be a relic consigned to museums (just like Ford’s Model T).
I had this “Aha!” moment recently when I visited a Tesla TSLA, -0.14% store and eyed its cars’ power train. It looks just like a skateboard — basically a vapid slab of metal (which houses the battery), four wheels, and an electrical engine the size of a large watermelon. That’s it — the Tesla has only eighteen moving parts.
Wall Street nowadays is going gaga over the stocks of auto dealerships (especially after Warren Buffett’s Berkshire Hathaway bought Van Tuyl Group) and automakers. I am in the minority in thinking that party will come to an end. Just like Tesla, Apple is not going to be using a dealership model to sell its cars. Just as with the iPhone, the company will want accomplish control of the buying practice.
If both Tesla and Apple bypass the dealership model, the GMs of the world will be at an even larger competitive disadvantage. They will have to abandon the dealership model too. Yes, I know, selling cars directly to consumers is not legal in many states, but if the U.S. Constitution could be amended twenty seven times, the law on car sales (which is an artifact of the Superb Depression) can be amended as well. The traditional dealership model is unlikely to sustain anyway, as its economics dramatically degrade in the electric-car world. A car with few moving parts and minimal electronics has few things to break. Consequently, electrified cars will need less servicing, throttling the dealerships’ most significant profit center.
What is also amazing about electrical cars is that they aren’t that much different from smartphones. Smartphone prices have declined significantly because their components became ubiquitous and commoditized. The simpleness of electrified cars and the declining ambition of Tesla, Apple, and whoever else comes in that space to be known as a “car” company will likely lead to commoditization of components and thus lower prices. Tesla today is more a software and battery company than a car company.
Think back to the day when Apple introduced the iPhone. No one suspected that it (and the smartphones that followed) would enable a service like Uber, which is putting cabdrivers worldwide out of business.
The baby boomer generation romanticizes cars. Most boomers can recite the horsepower and other engine specs of every car they have ever possessed. For the tail end of Gen-X (my generation) and Millennials, a car is an interruption inbetween Facebook FB, +0.03% and Twitter TWTR, -0.30% . We know the brand of speakers in our car but if asked would have to Google its horsepower. We feel little romanticism for our cars and have much higher brand loyalty to Apple and Google GOOGL, -0.34% than to GM or Ford Motor F, +Two.90%
When Apple makes its entrance into the auto industry, it will likely be successful and very disruptive. After all, Apple has the much-needed software know-how to design a car. (Apple is already working with car companies on CarPlay, the iPhone-centered car infotainment system.) Apple boasts a global network of stores, possesses unlimited resources ($150 billion of net cash and $50 billion of free cash flows annually), and its imagination has not been bruised by decades of producing cars with internal combustion engines.
General Motors’ response to Tesla has been no different from Nokia’s response to the iPhone.
Let me stress that last point. There is a good reason why Nokia, which at one time was the superior cellphone manufacturer, failed to challenge with the iPhone. It had too much institutional skill. Nokia had hundreds of engineers who attempted to add IQ to a dumb phone. The company was attempting to convert Symbian, a dumb-phone operating system, into a smartphone operating system. Despite Apple displaying Nokia how the smartphone should look, the company couldn’t see its product as a smartphone but rather just as the next iteration of a dumb phone.
General Motors’ response to Tesla has been no different from Nokia’s response to the iPhone. GM came out with the Chevy Volt, which was truly one of its internal combustion engine (ICE) cars with an electrified engine dumped in. Unless an ICE car company creates a silo unit isolated from the rest of the operation, it will be utterly difficult if not unlikely to get engineers who have designed ICE vehicles all their lives to switch their thinking and turn into electric-car engineers.
So, how does one invest in this overvalued market? Our strategy is spelled out in this fairly lengthy article.
Vitaliy N. Katsenelson is chief investment officer at Investment Management Associates in Denver, Colo.,and which holds a position in Apple. He is the author of “Active Value Investing” (Wiley) and “The Little Book of Sideways Markets” (Wiley). This article very first appeared on Katsenelson’s Contrarian Edge blog.
The Apple Car could run traditional automakers off the road
Opinion: The Apple Car could run traditional automakers off the road
Published: July 29, two thousand seventeen 12:12 p.m. ET
VitaliyN. Katsenelson
Apple’s brand extends far beyond technology and coolness. The company has accumulated incredible goodwill with consumers.
So whenever Apple AAPL, +0.03% comes out with the Apple Car, it will grab a disproportionately large market share from General Motors GM, +Two.24% and other automakers precisely because of that deep well of goodwill. By the time my youngest child, Mia Sarah, who is almost two, learns to drive, internal combustion engines will likely be a relic consigned to museums (just like Ford’s Model T).
I had this “Aha!” moment recently when I visited a Tesla TSLA, -0.14% store and spotted its cars’ power train. It looks just like a skateboard — basically a plane slab of metal (which houses the battery), four wheels, and an electrical engine the size of a large watermelon. That’s it — the Tesla has only eighteen moving parts.
Wall Street nowadays is going gaga over the stocks of auto dealerships (especially after Warren Buffett’s Berkshire Hathaway bought Van Tuyl Group) and automakers. I am in the minority in thinking that party will come to an end. Just like Tesla, Apple is not going to be using a dealership model to sell its cars. Just as with the iPhone, the company will want finish control of the buying practice.
If both Tesla and Apple bypass the dealership model, the GMs of the world will be at an even larger competitive disadvantage. They will have to abandon the dealership model too. Yes, I know, selling cars directly to consumers is not legal in many states, but if the U.S. Constitution could be amended twenty seven times, the law on car sales (which is an artifact of the Good Depression) can be amended as well. The traditional dealership model is unlikely to get through anyway, as its economics dramatically degrade in the electric-car world. A car with few moving parts and minimal electronics has few things to break. Consequently, electrical cars will need less servicing, throttling the dealerships’ most significant profit center.
What is also amazing about electrical cars is that they aren’t that much different from smartphones. Smartphone prices have declined significantly because their components became ubiquitous and commoditized. The plainness of electrified cars and the declining ambition of Tesla, Apple, and whoever else comes in that space to be known as a “car” company will likely lead to commoditization of components and thus lower prices. Tesla today is more a software and battery company than a car company.
Think back to the day when Apple introduced the iPhone. No one suspected that it (and the smartphones that followed) would enable a service like Uber, which is putting cabdrivers worldwide out of business.
The baby boomer generation romanticizes cars. Most boomers can recite the horsepower and other engine specs of every car they have ever possessed. For the tail end of Gen-X (my generation) and Millennials, a car is an interruption inbetween Facebook FB, +0.03% and Twitter TWTR, -0.30% . We know the brand of speakers in our car but if asked would have to Google its horsepower. We feel little romanticism for our cars and have much higher brand loyalty to Apple and Google GOOGL, -0.34% than to GM or Ford Motor F, +Two.90%
When Apple makes its entrance into the auto industry, it will likely be successful and very disruptive. After all, Apple has the much-needed software know-how to design a car. (Apple is already working with car companies on CarPlay, the iPhone-centered car infotainment system.) Apple boasts a global network of stores, possesses unlimited resources ($150 billion of net cash and $50 billion of free cash flows annually), and its imagination has not been bruised by decades of producing cars with internal combustion engines.
General Motors’ response to Tesla has been no different from Nokia’s response to the iPhone.
Let me stress that last point. There is a good reason why Nokia, which at one time was the superior cellphone manufacturer, failed to rival with the iPhone. It had too much institutional skill. Nokia had hundreds of engineers who attempted to add IQ to a dumb phone. The company was attempting to convert Symbian, a dumb-phone operating system, into a smartphone operating system. Despite Apple demonstrating Nokia how the smartphone should look, the company couldn’t see its product as a smartphone but rather just as the next iteration of a dumb phone.
General Motors’ reaction to Tesla has been no different from Nokia’s response to the iPhone. GM came out with the Chevy Volt, which was indeed one of its internal combustion engine (ICE) cars with an electrified engine dumped in. Unless an ICE car company creates a silo unit isolated from the rest of the operation, it will be enormously difficult if not unlikely to get engineers who have designed ICE vehicles all their lives to switch their thinking and turn into electric-car engineers.
So, how does one invest in this overvalued market? Our strategy is spelled out in this fairly lengthy article.
Vitaliy N. Katsenelson is chief investment officer at Investment Management Associates in Denver, Colo.,and which holds a position in Apple. He is the author of “Active Value Investing” (Wiley) and “The Little Book of Sideways Markets” (Wiley). This article very first appeared on Katsenelson’s Contrarian Edge blog.