Hyundai’s negotiations with Apple on building the tech giant’s electric vehicles have broken down, WSJ reports.
Why It Matters: Hyundai and subsidiary Kia can say goodbye to a multi-billion dollar opportunity with possibly even more potential than that. Apple has been working on his highly-secretive electric vehicle project for years and the recent talks represented the most clear cut evidence that the plans were coming to fruition (eventually). For traditional automakers, Apple chasing Tesla stoked fears that they would be surpassed in the same way the iPhone maker obliterated Nokia and Blackberry after the game-changing smartphone launched in 2007.
How Did We Get Here?
- Apple and Hyundai-Kia held discussions about building vehicles in Georgia, WSJ reported last week.
- A potential partnership then sent Hyundai-Kia’s stock “stocks soaring this year, igniting investor enthusiasm after both Kia and Hyundai had suffered years of slumping car sales.”
- Apple started looking at partners toward the end of last year as it weighs whether it can begin production by 2024.
- News of potential Apple partners is generally mum, but Hyundai let it slip in January before quickly backtracking.
- Kia, in recent weeks, had started checking in with potential partners to help produce the electric car even without the Apple deal in place.
According to regulatory findings, Hyundai and Kia clearly stipulated they are ““not in talks with Apple over developing an autonomous vehicle.”
- Hyundai-Kia says it has fielded multiple requests from other companies to partner up on electric and autonomous vehicle production, but no plans have been made.
The Fallout: Hyundai Motor watched its shares drop 6% Monday, while Kia saw a more than 13% plunge. Apple’s EV efforts remain “largely unrealized as it has struggled to decide which path it will use.”
I would imagine that being a supplier for Apple is extremely demanding and requires many concessions. This is why Apple has been able to maintain such high 30% EBITDA margins using suppliers like Taiwanese Foxconn (2354:TT), who has low EBITDA margins below 8%.
If I had to guess why the talks broke down, I would imagine that Hyundai (005385:KS) is not used to bending to a designer’s will in the same way that pure manufacturers are, like Foxconn is.