7 ms·

If you are Toyota, you've only demonstrated you could build cars profitably for the consumer market you were already in. If consumer preferences, trends, etc ha

If you are Toyota, you've only demonstrated you could build cars profitably for the consumer market you were already in. If consumer preferences, trends, etc have changed, and no product is yet available to fulfill those new preferences, there is actually risk that what you are good at building profitably isn't what people want anymore. There is risk in that too.

SkyMarshal 6y ago
Well to nitpick a little, in the case of Toyota at least, and given the success of the Prius, it seem Toyota has proven they can identify and succeed in (or even create) new consumer markets.
- enos_feedler 6y ago
  Thats true. Gotta give them credit. This could be a good proof point for derisking the Toyota case. However, Apple is pretty secretive and they often surprise us. There is a lot of design space deviation possible in a complex product like a car. Until we know what that product delta is, we cant really assess Toyota’s ability to pivot quickly enough. Apple wouldnt invest if the delta on what they can offer is small. So should be interesting.
ethbr0 6y ago
There is. But are you saying that: "the risk that Toyota, with demonstrated volume manufacturing prowess, is unable to pivot into a new class of vehicles" is greater than "the risk that a new manufacturer, with no track record of volume automotive manufacturing, can create a product and manufacture it in volume"? That was my original contention and where I feel the market is mispricing risk.
- enos_feedler 6y ago
  Yes. Because there is theory and case studies to back how often a company like Toyota will fail to pivot
  - ethbr0 6y ago
    That's arguing only critically examining one side. How many theories and case studies are there documenting how a company failed to execute something it's never done before, and has no competency at?
    - enos_feedler 6y ago
      too many to know about and count. Way more than the side I am highlighting. But this isn't just "a company", it is Apple. I know everyone doesn't believe in them, even if you ground yourself in their track record of execution. I would also challenge the notion of "no competency at all". This isn't like a great chess player thinking they can use that skill to become a great football player. This is more like one of the best baseball players becoming a great football player [1]. Things are different but there exists a lot more similarities than you think. And if you are one of the greatest of all time (which is true for both Bo Jackson and Apple) there is a non-zero chance you can pull it off. [1] https://en.wikipedia.org/wiki/Bo_Jackson https://en.wikipedia.org/wiki/Bo_Jackson
      - ethbr0 6y ago
        > it is Apple [...] track record of execution Granted! My personal guess is this turns out much like Google Fiber: a capital- and regulation-heavy endeavor that Apple (and their investors, used to tech margins) aren't culturally or financially willing to commit to for a long enough haul. But an effort which eventually pays off by frightening existing players into cutting better partnership deals with Apple. From a quick peek, Apple runs ~25% pre-tax margins. For reference, Ferrari has ~20%, as the highest in the industry. And ~10% or less seems standard. So in the end, if Apple is more successful than Ferrari at selling vehicles profitably, they'll still be making less money than they're used to on the investment. That doesn't seem like something investors are going to be willing to let Apple endlessly torch cash in pursuit of, competing against firms with decades of experience, when the alternative is returning it directly to them via dividends, buybacks, etc. And that's not even getting into the optics of labor-relations with manufacturing that Apple would have to very publicly expose, vs their more hidden technology supply chain. The more I think about this, the more it seems like the only viable "Apple car" is a limited-volume halo project, built on top of an existing manufacturer's platform -- which would mirror their approach to technology, in many ways.

SkyMarshal 6y ago

Well to nitpick a little, in the case of Toyota at least, and given the success of the Prius, it seem Toyota has proven they can identify and succeed in (or even create) new consumer markets.

enos_feedler 6y ago
Thats true. Gotta give them credit. This could be a good proof point for derisking the Toyota case. However, Apple is pretty secretive and they often surprise us. There is a lot of design space deviation possible in a complex product like a car. Until we know what that product delta is, we cant really assess Toyota’s ability to pivot quickly enough. Apple wouldnt invest if the delta on what they can offer is small. So should be interesting.

ethbr0 6y ago

There is. But are you saying that: "the risk that Toyota, with demonstrated volume manufacturing prowess, is unable to pivot into a new class of vehicles" is greater than "the risk that a new manufacturer, with no track record of volume automotive manufacturing, can create a product and manufacture it in volume"? That was my original contention and where I feel the market is mispricing risk.

enos_feedler 6y ago
Yes. Because there is theory and case studies to back how often a company like Toyota will fail to pivot
- ethbr0 6y ago
  That's arguing only critically examining one side. How many theories and case studies are there documenting how a company failed to execute something it's never done before, and has no competency at?
  - enos_feedler 6y ago
    too many to know about and count. Way more than the side I am highlighting. But this isn't just "a company", it is Apple. I know everyone doesn't believe in them, even if you ground yourself in their track record of execution. I would also challenge the notion of "no competency at all". This isn't like a great chess player thinking they can use that skill to become a great football player. This is more like one of the best baseball players becoming a great football player [1]. Things are different but there exists a lot more similarities than you think. And if you are one of the greatest of all time (which is true for both Bo Jackson and Apple) there is a non-zero chance you can pull it off. [1] https://en.wikipedia.org/wiki/Bo_Jackson https://en.wikipedia.org/wiki/Bo_Jackson
    - ethbr0 6y ago
      > it is Apple [...] track record of execution Granted! My personal guess is this turns out much like Google Fiber: a capital- and regulation-heavy endeavor that Apple (and their investors, used to tech margins) aren't culturally or financially willing to commit to for a long enough haul. But an effort which eventually pays off by frightening existing players into cutting better partnership deals with Apple. From a quick peek, Apple runs ~25% pre-tax margins. For reference, Ferrari has ~20%, as the highest in the industry. And ~10% or less seems standard. So in the end, if Apple is more successful than Ferrari at selling vehicles profitably, they'll still be making less money than they're used to on the investment. That doesn't seem like something investors are going to be willing to let Apple endlessly torch cash in pursuit of, competing against firms with decades of experience, when the alternative is returning it directly to them via dividends, buybacks, etc. And that's not even getting into the optics of labor-relations with manufacturing that Apple would have to very publicly expose, vs their more hidden technology supply chain. The more I think about this, the more it seems like the only viable "Apple car" is a limited-volume halo project, built on top of an existing manufacturer's platform -- which would mirror their approach to technology, in many ways.