This week’s mythical creature: The Apple Car

Three words of advice for all you iPhone fans who are enthralled by the idea that Apple is entering the car market and are preparing to be first in line at the Apple Store when those fabulous cars start rolling off the production line:

Get a grip.

Apple is living in a PR sweet spot just now. The company’s public profile is sandwiched between blowout quarterly financial results, driven by its amazingly successful iPhone 6 launch, and the (sing along with me) an-tic-i-pa-tion of the coming Apple Watch.

Apple CEO Tim Cook, who just a few months ago was the focus of questions about whether he’d ever emerge from the shadow of Steve Jobs, now is said to have a Jobsian magic touch. Every word from Cook is treated as oracular, every rumor about Cook’s Apple taken as tangible reality.

This is a dangerous place for Apple and for its followers. It’s the path to hubris and to some very flawed investing judgments.

All that’s true about the Apple Car at the moment is that the rumor has the veneer of reality. But it’s so premature that veteran Apple followers are inclined to think it’s still much more likely to not happen than to happen. John Gruber of daringfireball.net, for instance, is willing to say only that “where there’s smoke, there’s fire. And all of a sudden there is a lot of smoke in the air on this one.”

But as President John F. Kennedy said, “Where there’s smoke, there’s usually a smoke-making machine.”

The rumor broke out in public about a week ago with reports on the website 9to5Mac that Apple was preparing to give Tesla Motors “a run for its money” and in the Wall Street Journal that Apple had a team of “hundreds” working on an electric car.

The Journal’s story, which even cited the project’s code name (“Titan”) and described the machine as resembling a minivan, included a nifty inside joke: “An Apple spokesman declined to comment,” it said. As if the source of the rumor, somewhere along the line, isn’t Apple itself. Apple has some of the finest smoke-making machines in business.

9to5Mac followed up with a list of the project’s personnel. They include a few auto hardware engineering types, but also application and design whizzes. Put it together and the proper conclusion is that this project could be almost anything. It looks like a very early stage blue-sky noodling, not a plan to build an electric car.

The right way to think about this is to ask which you’re likely to see first: The Apple Car, or a joint Chargers/Raiders NFL stadium in Carson. More to the point, you should ask which of these rumors is likely to evaporate first. (My prediction, given the NFL’s interest in keeping L.A., San Diego, Oakland and every other franchise city dangling: the Apple Car boomlet will disappear first.)

People conveniently forget that Apple sometimes fosters rumors for years that never jell. The last round of expectations that Apple was going to “reinvent” a mature industry involved the Apple TV. This arose from a few lines in Walter Isaacson’s biography of Steve Jobs. No one seemed to stop and ask just what there was about modern television sets that required an Apple reinvention. We’re still waiting to learn.

The Apple Watch is on the verge of moving from rumor to reality. But its capabilities have shrunk greatly from the initial rumors. The list of technologies and apps that have been dropped from the Apple Watch is almost longer than the list of what will be in it.

Much of the conjecture about the Apple Car starts with the assumption that the car is a reality, then fashions a narrative to explain why Apple built it.

Some say it’s an outgrowth of Apple’s frustration that its automotive entertainment and communications system, CarPlay, hasn’t won much acceptance from carmakers. Therefore (the argument goes) Apple figured: Why not just build our own car?

Some seem to think it makes sense for Apple to build a car as a platform for its other products. For example, here’s a statement from Barclays Capital securities analysts quoted by my colleague Jerry Hirsch: “An Apple car could sync easily with iPhones and iPads while expanding the scope for current and new Apple services down the road.”

In other words: Apple should sell a car for, say, $40,000 to $100,000 to provide a bigger market for its $600 iPhones and iPads?

Henry Blodget, who gained recognition as a securities analyst by helping to pump up tech stocks during the dot-com frenzy of the late 1990s and now runs Business Insider, has provided the most expert puncturing of the Apple Car gas bag.

The broad car market, he observes, is a capital-intensive, low-margin business that would actually shrink Apple’s profits if it succeeds in penetrating the space. Ah, but what if Apple aims for the specialty, high-priced end, say by emulating Porsche or BMW? Margins are higher there, Blodget concedes.

“So if Apple grew a BMW, Apple’s profit would increase by about 20%,” he writes. “Not bad! All Apple has to do to grow its profit 20% is to create a car business the size and quality of BMW’s.”

Sure, but those are legacy carmakers with lots of hoary traditions and costs. Apple would build a business like Elon Musk’s Tesla Motors, from scratch.

Right. Except that Tesla doesn’t actually turn a profit. Over its last three reported quarters ended Sept. 30, it lost $186 million.

The Apple Car enthusiasts point to the iPhone as a product that no one expected to succeed, but turned the world upside down. But that doesn’t make the iPhone an argument for the Apple Car. As Blodget reminds us, the iPhone is an outlier even for Apple, and a good part of its success comes from the fact that it’s a $600 device that consumers often can acquire at a steep discount--sometimes for free--thanks to their cellphone carriers. Will a car selling for five or six figures have the same appeal?

Building automobiles is an incredibly complex and messy business. It’s heavy manufacturing; Apple doesn’t even do light manufacturing, but instead farms out the production of its devices to contractors mostly in China. Dan Akerson, the ex-CEO of General Motors, put things in perspective most bluntly when he told Bloomberg, “I think somebody is kind of trying to cough up a hairball here....We take steel, raw steel, and turn it into car. They have no idea what they’re getting into if they get into that.”

What’s most likely to emerge from the “Titan” project isn’t a car, but a series of concepts and systems that can be put in cars. Apple’s CarPlay, for instance, might evolve to the point that it’s an integrated system that enhances the features or performance of a BMW, say. The company’s computing expertise might improve the electronics that are ever more important components of even basic cars (though Apple’s expertise in pure computing technology, as opposed to its packaging and design, can be overstated).

Just because Apple has hired battery and auto transmission experts doesn’t mean it’s preparing to manufacture batteries and transmissions; it might mean that Apple is hoping to provide services, hardware and software to automakers, and figures it should know more about the rest of what goes into a car. Building a prototype automobile might be part of that learning process, but that’s also a far cry from getting into auto manufacturing. Prototypes also make for great publicity--witness the excitement that always attends Detroit’s “concept” cars at auto shows.

Building cars probably lies within Apple’s theoretical capabilities, if it’s willing to spend absolutely enormous amounts of capital (the company does have a cash hoard of $178 billion, after all). But the real question isn’t whether it can build a car, but why it would want to. That question doesn’t yet have an answer.

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