Jim Farley, the CEO of Ford has been driving a Chinese car that he had flown over from China six months ago. A luxury car priced at $30,000, it does 0 to 60 in 2.9 seconds, has a 500 mile range, and has a UX (user experience) that he thinks rivals a Porsche.
Xiaomi SU7
Elon should be toadying up to Xi Jinping
intercst
Xiaomi is primarily a cell phone maker. They better have the UX sorted out. They only got into cars a few years ago. So, what is Farley’s ploy in gushing about their cars? Trying to sell Ford’s Chinese ops to them? Trying to license their technology for use in the US, in spite of the US government moving to ban Chinese sourced “connected car” technology? Using that as a knowledge base, to impress on the government what a threat they are, in spite of the US government already imposing a 100% tariff on Chinese EVs? Or is Farley simply a horse’s patoot?
Steve
Maybe he just likes the car?
Maybe there’s an opportunity to “joint venture” with Xiaomi, the way the Chinese required US firms to JV with Chinese firms to get access to their market?
I have to wonder, though, how Xiaomi, a cell phone maker, could slide so easily into automotive, while Apple, essentially a cell phone maker, couldn’t.
Where did they get their engineers? VinFast came out of nowhere, building EVs, and their cars are reputed to be the worst driving things in the industry.
Ford’s Chinese partners are Changan Automobile and Jiangling Motors, of which Changan is a major shareholder.
Steve
Based on everything I’ve seen about the Apple iCar, it isn’t so much that they “couldn’t” but rather than they chose not to. My educated guess is that they decided they wouldn’t build a car at scale at a typical or better auto profit margin to make the investment worth it. For a large company with 35+% margins to add a new product that eventually could be 30+% of their sales at a 15% margin (that’s good in the auto industry) would dilute the company value overall, making it not worth doing.
15% is great for the auto industry. Historical norm is more like 5-6%. Management has been pushing margins of lately, by dropping their lower price/lower margin models, and cheapening what they do still make. Stellantis got it’s margin up to 11%. Ford must be a little later in the cheapening cycle, as it’s profits are being eaten by massive warranty claims expense.
Steve
Tell it to WalMart which took a retail colossus with decent margins and expanded into grocery, with typically 1-2% margins, and became even bigger, and is now the #1 seller in both retail and groceries. And has amped up their logistics network at the same time, giving them advantages in both other businesses.
WalMart never had anything close to 35% margins. And retail is different than tech, and as such is valued differently than tech is. WalMart made a different decision, I suspect they realized that they’d reached a level of growth that couldn’t be sustained, or at least could be sustained without eventual antitrust action. So they decided to add grocery to add some growth, and to broaden their footprint to avoid antitrust. And not just antitrust, also avoiding general “anti” sentiment. When you provide groceries in an area, the powers that be in that area are much less likely to “ban” you, or much less likely to make doing business difficult for you, than if you just sell mostly Asian-produced plastic “carp”.
I had a supermarket chain client in Venezuela. I marvelled at their 30% return on capital on razor thin margins. The Purchasing Manager explained, “I have to sell the merchandise three times before I pay for it.” In other words, if he got 30 day terms the merchandise had to be off the shelves in ten days.
The Captain
Walmart net margins are in the low single digits for many years now. That’s why they can add low margin groceries to their business.
WalMart retun on capital is a respectable 12% or so. They also have great turnover for their business. Logistics second to none (maybe even better than Amazon).
In 1984, a typical year for the time (and just before they began selling groceries) WalMart’s gross margin was 27%. That’s exceptionally healthy by retail standards, and adding grocery, a notoriously low margin business was a risk - not to the company but because it threatened to scare institutional investors who worried about such things.
WalMart didn’t care, they began opening grocery in SuperCenters and it took off immediately. (You may remember that WalMart also opened several HyperMarts, even larger, in an experiment which failed.)
I have no memory of WalMart fearing antitrust action, and was an investor during that time period. Do you have a link? (I remember a few complaints, none legal, and certainly none from government).
Oh, I didn’t know. I guess the guys trying to put together Kroger and Albertson’s missed the memo. Also Price Chopper and Topps. Also Safeway & Albertson’s . Also ahold and Delhaize.
Apple’s problem was just that there was no vision there, They couldn’t decide whether to make a car, a toaster box, a van, or a truck. With self-driving or not. Tim (unlike Steve) never gave any direction, the team floundered from one concept to another, never choosing to focus. Clearly Xiaomi did, and produced one, apparently a decent enough entry to have gained some notice.
The worldwide automotive market is worth six times that of the cell phone manufacturing market. Shame Apple couldn’t find it in their hallowed halls to try to get a piece of it.
Terrifically interesting micro information. One of the things I love about this board is that every now and then someone throws in a diamond level jewel of information.
Thanks
d fb
That’s not tech though. Most of the big tech companies have margins greater than 50%. Cook won’t want to deploy capital unless he can get something on that order.
Tesla has about 17% margins (last I checked) which is great for a car company, but bad for a tech company.
That’s the way to do it if you can. By design, Costco carries items that will turn over in less than 30 days, 12.4 times per year, to be exact. That means items are typically sold before Costco has to pay for them. Compare with Wal-Mart who turns over inventory eight times per year.
Back in the early days Amazon poached so much logistics talent from Wal-Mart that Wal-Mart sued them.
No, it’s not. And it’s more unusual than usual that tech companies get that 50% margin; they have to own the segment to do so. (Sure, a few do. Most don’t.) Facebook, yes. Twitter, Bluesky, Reddit, LinkedIn, not The list of significantly large software companies (enough to move the Apple needle) not named Microsoft or Oracle that do those kinds of margins is pretty short. Nvidia and TSMC, I note, make products, aka “manufacture”.
I’d also point out that most of Apple’s revenue come from ta-da, selling a manufactured product. And that automobiles are probably the closest reasonable possibility for expansion into a new area, given the growing use of software in cars. (Aviation is another, but that is far more fraught.)
BTW, I’m sure the margins in cars didn’t suddenly occur to the bigwigs at Apple this year. In fact they spent billions and billions over many years trying to figure out how to get into the business. And failed.
If others can do it, why is Apple folding before it even starts? Instead we have Vision Pro, a product costing billions in development for which there appears to be no market? Pretty sure “automobiles” is a category that’s going to be around for a while.
I can think of one reason why Apple bailed. In Q2 2024, Xiaomi delivered 27,000 BEVs at a $250M USD dollar loss. They lost $9K USD for every car sold. And that is with Chinese labor costs.
Perhaps Apple didn’t think it was a good business model.
Everyone has to remember that no one but Tesla is consistently making a profit selling BEVs. It is not just the product that is important, but also the means of production.
"Xiaomi’s auto business is still operating at a loss. The unit reported an adjusted loss of 1.8 billion yuan for the quarter, " https://www.reuters.com/technology/xiaomi-q2-revenue-jumps-32-auto-business-smartphone-sales-2024-08-21/
Shocking, really, that a start up automobile company is operating at a loss as they, um, start up. Unlike Tesla, which, wait, let’s see: operated at a loss for 17 years.
Say, I wonder how profitable the Vision Pro glasses are? Surely they were profitable right out of the gate, right?
As I recall, for virtually all of those 17 years you were highly skeptical of Tesla ever making a profit. Why does Xiaomi get the benefit of your doubt?
Xiaomi is selling the SU7 for about $30K USD in China. Even ICE cars don’t make much profit at $30K. That’s not a business model Apple finds appealing.
Apple had the same business plan as Musk, develop an autonomous vehicle. Autonomy was the high margin product. When it failed to develop the software, Apple bailed on the hardware.
Many who have been in an SU7 say it essentially appears to be a copy of the Tesla Model 3 (with some small body changes here and there, a slightly weaker motor, and a few added small features like HUD, but really not much different overall). And the Tesla Model 3 sells for a similar price in China (about $32k).
Exactly. The margins are just not what Apple is used to. And to make matters worse, Apple couldn’t sell a $30-40k car because they need to be in the “premium” segment of the market, so it probably would have been closer to $70k+. And $70k+ cars don’t sell in the kind of numbers needed to EVER have a chance at high margins given the huge capital investment required. This is, for example, why Lucid will require more Saudi money forever, as long as they only sell premium vehicles like the Air and the Gravity.