Snubbed by Automakers, Apple Turns to Foxconn and Magna to Build the Apple Car

Apple may be the most valuable company in the world, but when it comes to courting the automotive industry, it seems to be having some serious problems filling its dance card.

To be clear, Apple doesn’t want to be a wallflower; by all reports it’s been actively seeking experienced partners to help build the Apple Car, but it’s also been finding itself snubbed as an outsider at many turns by big name automakers who want to keep the Cupertino company at arms’ length.

Perhaps ironically, however, it’s Apple’s extremely strong brand that’s been the source of most of the angst from potential partners. For example, although Apple reportedly spent two years in talks with Hyundai, that wasn’t without much hand-wringing from the South Korean automaker’s executives, who appeared to be petrified of having their brand swallowed up by the big Apple.

Although some executives seemed to think that offloading the Apple Car to Kia Motors might help to avoid that problem, in the end even didn’t assuage everyone’s fears, and last month the talks came to a screeching halt.

Meanwhile, Apple found itself getting even less traction with other automakers such as Nissan, which didn’t even seem willing to entertain the notion of a partnership with Apple, emphasizing that even though it was exploring partnerships with tech companies, it fully intended to do so only under its own brand.

So, even though CEOs and other top-tier executives from carmakers like Volkswagen and BMW keep insisting that they’re not losing any sleep over the Apple Car, these comments seem to be covering up a deep-seated insecurity — a fear that Apple very likely could succeed in the automotive industry — and succeed big.

After all, the most frequent comment we’ve heard from auto industry sources is that no branded carmakers want to become “the Foxconn of the auto industry,” effectively losing their brand identity entirely in the face of an Apple juggernaut.

Going with Plan B

While Apple would almost certainly prefer to partner with a company that has lots of experience in building cars, it looks like that option isn’t really going to be on the table, as Apple seems to have failed miserably at convincing any automaker of the benefits of partnering with it.

In fact, it shows the company’s extreme hubris that Apple even made the attempt in the first place, since what it was effectively asking automakers to do was to help it produce a rival to their own products. As one longtime manager from both Apple and Tesla told Bloomberg, that would be like Apple asking Samsung to help manufacture the iPhone. It’s just not going to happen.

So, not surprisingly, according to the Bloomberg report, discussions between Apple and the car industry at large have fizzled out entirely in recent months, leaving Apple with effectively no choice but to turn to its iPhone playbook and engage a more general contract manufacturer like Foxconn.

To be fair, this is the business model that Apple is much more accustomed to, as that’s how every other one of its products has been produced for decades. In the case of the Apple Car, however, it was undoubtedly hoping that it could get a head start on the development by having a carmaker who was already tooled up and experienced for producing something on that considerably larger and more complex scale.

After all, there’s a pretty big difference between a factory that churns out iPhones and one that has to produce full vehicles — not just in size, but also in the multi-discipline complexity of the vehicle. All of Apple’s previous products are almost fully electronic devices, while a car naturally has a multitude of mechanical components as well.

Still, with nowhere else to turn, industry insiders are saying that Apple is now looking at both Foxconn and Magna to become the powerhouses behind the Apple Car, and to be fair they’re not entirely starting from scratch either.

As Bloomberg notes, Foxconn, more formally known as Hon Hai Precision Industry Co., has already been branching out into the automotive business, releasing an electric vehicle chassis and software platform last fall. It’s also signed a deal to produce 250,000 EVs per year for Fisker, a small San Francisco-based electric car startup company.

Further, while partnering with a well-known car company would almost certainly be a power struggle for Apple, Foxconn is already accustomed to having Apple engineers tell it what to do and simply falling into line. The relationship here would clearly be one where Apple was solidly in the driver’s seat.

Magna is the other manufacturer that Apple has reportedly been courting — a heavyweight Canadian automotive company that has even more experience in the industry. It’s been building automotive systems and various other assemblies and components for years for such big names as Audi, BMW, Daimler, Fiat, and Jaguar Land Rover, among others. In fact, Magna and Apple were said to be in talks five years ago, although it’s unclear exactly where those talks went, and they’ve been mostly off the radar in recent years.

However, as the CEO of a “well-known self-driving car company” told Bloomberg, it’s somewhat surprising that Apple has even been trying to court big-name carmakers when an option like Magna exists. According to consultant and analyst Eric Noble, Magna is “amazingly good” at what they do, and would be the most logical choice for Apple. Although Magna is headquartered in Canada, it also boasts 342 manufacturing operations across 27 countries, so it doesn’t seem like it would have any problem with scaling up production for the Apple Car.

Some analysts have also suggested that Apple could pursue a third option — creating its own manufacturing facilities from scratch — that seems to be the least likely approach. Not only is this not Apple’s style, but factories are generally low-margin businesses that would eat into Apple’s profits, and in fact, auto industry profit margins are even more abysmally low than what Apple is used to.

Further, Apple doesn’t need to look far for an example of how bad of an idea this is. Despite its wildly successful car lineup, Tesla has lost billions of dollars trying to run its own factories, only recently beginning to turn a profit of a mere $700 million last year — a number dwarfed by Apple’s $60 billion in profits.

Even though Apple has money to burn, that’s only because it generally makes sure that it’s highly profitable in just about any major new business that it enters. It’s not about to sell the Apple Car as a loss-leader, and it’s likely it would give up on the Apple Car project entirely if it couldn’t find a way to make it profitable.