Profit Margins and the Apple Car

Matthew Yglesias, writing for Vox:

There are dozens of ways in which Apple’s apparent effort to build an Apple-branded car could go wrong, but there’s one argument against the idea that I’m hearing a lot of that really doesn’t make sense. From Henry Blodget to former GM CEO Daniel Akerson to the LA Times to Yahoo Finance people are saying this won’t work because the car industry is a “low margin” business in contrast to the fat margins Apple is used to earning most of all on its workhorse iPhone.

The misperception here is that Apple earns high margins because Apple operates in high margin industries. The truth is precisely the opposite. Apple earns high margins because it is efficient at manufacturing and firmly committed to a business strategy of sacrificing market share to maintain pricing power. If Apple makes a car, it will be a high margin car because Apple only makes high margin products. If it succeeds it will succeed for the same reason iPhones and iPads and Macs succeed — people like them and are willing to buy them, even though you could get similar specs for less.

Bingo.

★ Tuesday, 24 February 2015