Apple JUST Canceled the Apple Car | Warning for Tesla.

wow it's finally happened after many

billions of dollars and 2,000 people

working hard on the Apple car project

the Apple car project is dead yes Tesla

has officially killed the Apple car

project okay that's my speculation we'll

talk about Tesla and implications for

Tesla in just a moment but first let's

consider what apple is Apple is a

designer and an ecosystem provider

you're locked into the ecosystem that is

Apple iPhone Apple watch Apple iPad

MacBooks Vision Pro virtual you name it

you're locked into an ecosystem in which

Apple can sell you high margin devices

cases accessories and of course service

Suites which are even higher margin

apple is a business that is driven by

high margin one of the reasons people

argue is that that it is a pricing power

company they're able to sell you virtual

reality headsets for three and a half

times what Facebook will charge and

they'll do it because people perceive

that Apple's quality is going to be the

best and so when people thought Apple

was going to get into auto automotive

manufacturing and design people thought

okay maybe we'll have a quality American

based competitor to the Mercedes the EVS

from Volkswagen or even the EVS from

Tesla and one that will not only be

delivered with quality and precision but

margin see remember look at Apple's

financials I I want you to be

comfortable with the financials this is

very simple all we have to do is look at

their products right here we can see

their products they generate around

$298

billion of product Revenue those

products only cost them about

$189 billion to manufacture in well the

year ending September 30th in the case

of this financial statement that gives

you about

36.5% profit on a product think about

that for a moment you go into an Apple

Store you spend $100 on an Apple product

let's say uh oh I don't know something

that should never cost nearly $100 but

how about a dongle you know how much

they're making off that 37 bucks every

100 bucks I know this doesn't actually

cost $100 it may as well be because it's

so expensive but the point is that's a

lot of money that you're making on a

gross profit basis on a product think

about it on a dongle on an iPad case on

the case for your 3D goggles or your

virtual reality goggles i s for $200 for

the freaking case I know cuz I was one

of the idiots who paid for it anyway

then you'll look at the other side what

do we have margin for Apple Services

2488 divided by

85200 we are sitting at

70.9 9 cents of every dollar are going

into Apple's gross profit so you spend

$100 a year on an Apple subscription

apple is putting about 70 almost $71

into their pocket that is margin baby

it's delicious when you take out all

their R&D and everything said and done

at the end of the year what do you have

about $97 billion left of net income

after every expense this company has

that works out to about 25 cents of

every dollar going into their pocket 25

cents hm who has a goal of making 25

cents in gross profit for their cars and

they're supposed to be the industry

leader oh Tesla yeah we'll talk Tesla in

fact we'll do it right now because take

a look at this last year where was our

gross Automotive margin well it was

28.5% at Tesla where was it the year

before that it was 29.3% that's gross

the net profitable figure was even lower

right we're just looking at gross margin

here net is down at like 8% now

okay now on Gross we're below 20% we're

not even 20% on gross margin for making

the vehicle so why does that matter well

think about it if apple is making 37 is

cents on products they're selling you

and 70 cents on Services they're selling

you on a gross basis why they get into

an industry where a company like Tesla

is making vehicles at a gross margin of

19% at scale well they might not be very

incentivized to because their margins

would get crushed now you might say well

there's there's competition I mean other

people are able to operate businesses

and scale electric vehicles right sure

we might look at a company like Neo who

has partnered uh with well other

companies to help them

manufacture their uh designed vehicle

see Neo designs the vehicle and then

somebody else manufactures it this

leaves them with a gross vehicle margin

of about

11% but after you actually get down to

gross margin after the other expenses of

sort of their revenues because their

revenues are not just coming from

vehicle sales they come from battery

sales and other contracts as well you're

only at a gross margin of 8% and they

use contract manufacturing well who else

uses contract manufacturing well Apple

does does Apple manufacture this phone

no it might assemble it but it

manufactures this with a company known

as foxcon and of course they're trying

to diversify that manufacturing to make

sure they can have as much margin

negotiating Cloud as possible with their

manufacturers which makes sense if

somebody can make you a cheaper iPhone

and can do it faster in let's say India

great more profit for the company right

same thing is true for the watches for

the provision for the iPads the MacBooks

you name it so you need a manufacturer

who could do it it's kind of like Nvidia

hey Nvidia you're selling

$40,000 h100 and h200 chips who's making

them for you ah Taiwan semiconductors

you're not making them yourself and

that's fine now what happens when in uh

Intel for example opens up their

manufacturing for some of these advanced

chips well now Nvidia can negotiate with

a company like TSM and say heyy you know

we might take some of our business over

here to Intel if uh you know you don't

uh you know you don't negotiate with us

on some of these prices this is how

contract manufacturers make more money

another contract manufacturer nase they

don't actually manufacture their

inverters that's how their margin on a

stupid solar inverter is like 50% it's

better than Apple's margins n phases

inverter margins are like 13 points 133%

better on a gross basis than Apple's

product revenues uh or margins that's

incredible it's crazy so interesting so

you can make a lot of money

manufacturing phones watches iPads

computers and inverters at least on a

gross basis can you make a lot of money

contract manufacturing with vehicles

well Neo can't figure it out well maybe

another American company can figure

figure it out maybe a company like rivan

can figure it out oh well rivian

delivered about 50,000 Vehicles last

year and last year they lost about2

billion yeah two billion with a B is how

much they lost trying to manufacture

these vehicles in America that means

they lost

$4,600 per rivan that they sold last

year now maybe you could say they're

scaling but they're already at 50,000

deliveries and they're still losing

$40,000 per vehicle consider how much it

costs them to make these vehicles so all

you have to do to figure that out is you

divide uh

6.4 billion dollars by 50,000 deliveries

what are you at it costs you

$128,000 per rivan they don't even sell

for that much they sell for like 80

obviously some of the other models sell

for a little more but if your average

cost is 128 what happens you lose money

and the losses are worsening see all of

last year they lost $500 million per

quarter in Q4 they lost more they lost

600 million in the quarter so the losses

are worsening they are not getting

better this last earnings report was

problematic for rivan but it's not just

them also consider a company like Lucid

who's had so many issues with service or

scaling production at all first of all

if it weren't for their Saudi Arabian

subsidies they'd be dead but they

delivered just 1,700 vehicles in Q4 Q4

Revenue was $157 Million which is great

but wait a minute on 1700 Vehicles how

much money did you actually keep on a

gross profit basis ah here you go you

earned $157 million but it cost you

$410 to manufacture those cars so $410

million okay here's here's the fun $410

million divided by 1700 Vehicles it cost

you about

$240,000 per vehicle in just cogs to

manufacture not including sgna or R&D if

you include those numbers it gets even

more disgusting all of a sudden you're

spending

$522,000 per vehicle delivered in Q4 now

obviously you would hope that Apple

would be able to scale more rapidly but

who's going to be their contract

manufacturer maybe you might say byd but

byd's net income is about 8% on their

vehicles their gross margin isn't that

far off of what Tesla's margin is

presently and that includes the fact

that byd is able to prop up some of

their numbers with an existing really

powerful business business model that

Toyota uses the plug-in hybrid model

these are not just pure EVS they're

plug-in hybrids they're really good at

them byd is a great company just like

Toyota is a fantastic company now I

don't expect BDS to be sold in America

anytime soon but what Tesla has done by

dropping the prices of EVS to make sure

they can essentially flood the market

with their mass production Vehicles is

squeezed out the competition Tesla has

Point Blank told rivan you will not be

profitable Lucid you will not be

profitable any GM Ford Volkswagen

Mercedes look at all of them they're all

scaling back EV production why because

Tesla is willing to drop prices until

the competition is dead squeeze their

margin down to where they're still

cranking out massive cash flow delicious

cash flow coming out of this company but

what ends up happening your competition

gets squeezed out is that bad for Tesla

well in the short term it's not great

because your margin gets hit but wait a

minute what do we still have here we

still have operating cash flow of$ 13

billion do at the company now of course

a lot of this is being reinvested into

uh expansions for new Giga facilities uh

or uh essentially expansions of existing

facilities which is great that's what

you would expect a company to do the

company if you break it out in terms of

a free cash flow basis still in the year

ending 2023 had free cash flow of just

over $4 billion so that's over on

average $ billion of free cash flow per

quarter three that's almost what is that

that's almost $10 million a day of free

cash flow 1 billion per quarter so if I

take a th000 divided by 90 days in a

quarter it's about $1 million of free

cash flow per

day Mass manufacturing Vehicles this

while Tesla has been plummeting prices

for their vehicles consider for a moment

the Tesla Model y so let's jump on into

the model y order page and let's see how

much we can buy one for know that the

model y was selling for about

$68,400 in

2022 and now if I jump into shop

available model y Teslas close to my ZIP

code I could get a model y rear wheeel

drive for $41,800

41,800 divided by 694 is about

40% less the price of the vehicle has

come down 40% % now what's remarkable is

that's the rear wheeel drive model at

42,000 which doesn't currently qualify

for tax credits but if I scroll over

here I could get myself a long range

dual motor Tesla for

50,000 minus the $7500 tax credit I'm

basically also at

$42,000 point is the cost of these

vehicles has plummeted and Tesla has

done so by Design the competition for

electric vehicles is getting d destroyed

apple is quitting and shifting their

team from electric vehicles their 2,000

Engineers finally to something they

should actually be working on either

they're following the trends or maybe

they'll finally make Siri work given

that the plans are for the company to

focus those 2,000 Engineers on

generative AI work now remember Apple

started working on the Apple car in 2014

they've been testing trying to get the

vehicle to level two plus by 2028 but so

far they're throwing in the towel and

this opens up the world for Tesla to

take it by storm at the very least in

America because I personally don't

expect byd competition in America given

the trade tensions America has with

China however in the International

Community byd will absolutely be a

competitor to Tesla and as a result the

world will likely be dominated by two

auto manufacturers Tesla and byd at

least an electric Vehicles everybody

else will get squeezed out unless they

transition and quite frankly nobody

seems to be capable of manufacturing

electric cars at the margins that Tesla

is able to do or byd is able to do with

the benefit of hybrid manufacturing

which is again a proven model that

they've already scaled and therefore can

print profitably as a result Apple has

folded Tesla takes a big win here now

from a stock point of view this is going

to be great for both apple and Tesla now

you think it should be take from one and

give to the other but quite frankly

Tesla's up about half a percent on this

news when the news broke and which is

actually a pretty benign movement and

Apple's up almost a percent and a half

given that it was red for the day Tesla

and apple can both exist they're just

going to exist in different worlds I

think this is a great step in the right

direction for Apple because the reality

is unless they're going to create a

manufacturing process which they have

never done before at least as far as I'm

aware they're not going to win in

automotive there's not a contractor that

they can call up and say make my Apple

car for me they've all been failing with

the exception of course of

byd maybe they could pull it off but why

not just let byd sell their cars at an

8% net profit margin and apple keep

doing what you're good at that's the big

question see why get into cars at all if

byd is going to operate an 8% net when

you could be putting 25 cents of every

dollar in your pocket net income in your

pocket so again Apple here smart move

get out of the low margin industry leave

more room for the players who can

actually pull off vehicles and that's

Tesla byd and the existing ice

manufacturers and hybrid manufacturers

stick with the high margin product and

eventually as the competition is crushed

I highly expect as interest rates slow

slowly start coming down you'll see a

Tailwind towards the interest rate

sensitive stocks like an N phase or

Tesla or whatever it may be and I

believe the long run future for the

company is strong but there's still some

bumpiness between now and then but this

does give you an update on what the heck

just happened with apple and why I

believe Tesla is heavily responsible for

it thanks so much for watching if you

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