A $21 billion wager on who will build the Apple car

A red-hot trend in the car industry is for new entrants such as Fisker Inc. to hand over the complicated and capital-intensive work of engineering and building vehicles to a contract manufacturer. Cars are increasingly judged on their software and electronics, so why bother wasting time and money on metal bashing?

If Apple Inc. is indeed seriously considering launching its own vehicle, as press reports suggest, then it will almost certainly decide to outsource, as it does with the iPhone. Apple designs the phone and its operating system but employs Foxconn to assemble components into a handset.

There’s at least one big contract manufacturer ready to take advantage of these seismic industry changes: Canada’s Magna International Inc. “If Apple is serious about building a car … Magna Steyr should build it,� said Evercore ISI analyst Chris McNally. Even if Apple doesn’t come knocking, the manufacturer is already advising tech groups and start-ups looking to enter the automotive business, and investors have taken note. Magna’s share price has almost trebled since March, giving it a $21 billion market value.


Magna is one of the world’s biggest car-parts suppliers, having generated nearly $40 billion of revenue in 2019 from products such as transmissions, vehicle cameras, mirrors and seating. Its contract-manufacturing subsidiary, Magna Steyr, is the really interesting piece.

It builds niche premium vehicles at a factory in Graz, Austria, including the Mercedes G-Class 4×4, the electric Jaguar I-Pace and the BMW Z4 sports car. Typically those companies choose to outsource the work, rather than retool or build a new production line, because the sales volumes are relatively small.

Magna assembled almost 160,000 vehicles in 2019 – more than many carmakers produce – and generated $6.7 billion of revenue from these activities. Together with joint venture partner Beijing Automotive Group Co. it recently added another facility in China, which is capable of producing 180,000 vehicles yearly. A north American plant might be next.

Magna’s client roster already extends well beyond the traditional automakers. Henrik Fisker’s eponymous car venture, for one, went public in October after merging with a special purpose acquisition company. A manufacturing and vehicle engineering partnership with Magna is key to Fisker’s asset-light approach. The latter often compares this to the Apple-Foxconn relationship and hopes that will avoid the production nightmares that bedeviled Tesla Inc.

The Austrian Magna subsidiary is reportedly in talks about producing vehicles for Canoo Inc., another SPAC-backed car start-up, while in China it’s started producing the Arcfox for BAIC’s electric vehicle offshoot. Other projects include helping Alphabet Inc.’s Waymo subsidiary integrate self-driving technology into vehicles and working with Sony Corp. to produce the futuristic Vision S prototype car.

You can see why new entrants may chose to work with a neutral party like Magna rather than partnering and sharing plans with an existing carmaker that might be a potential rival. As well as providing production capacity, Magna says it can handle the entire vehicle development process. The company was hired to turn chemicals billionaire Jim Ratcliffe’s Grenadier 4×4 into reality.

It can also take a financial interest in the companies with which it works. If it does what it promises, Magna could end up owning 6 percent of Fisker. Last year, it invested $100 million in Waymo .

These are welcome sweeteners because contract manufacturing’s economics are tough. The vehicle-building subsidiary produced a 2 percent operating return on sales last year – much lower than the average in other parts of Magna’s business.

And there are risks in adding manufacturing capacity for start-ups that may fail or decide to source the work themselves. If Apple were to become a Magna customer it would drive the same hard bargain, as it does with Foxconn, whose operating margins have shrunk to about 2 percent. Apple’s is 24 percent.

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