Apple sees the acquisition of McLaren as key to its Project Titan plan to enter the car industry and use FI to promote its tablets and smartphones to younger buyers. Autocar has learned. The impetus is to acquire McLaren’s vast technical know-how and R&D expertise, including the main automotive engineering disciplines of body structures, powertrains, chassis, electrics, battery technology and aerodynamics in both road cars and F1. Apple’s board is understood to have decided that acquiring McLaren in a single transaction is a much faster route to becoming a car manufacturer than building a business from scratch. “McLaren is one of the only businesses like this that might be available and isn’t tied up with anyone.” Sources have told Autocar.
“It’s a golden opportunity.” While Apple remains tight-lipped. McLaren is also playing down speculation about the deal, but both companies are understood to have cleared a statement from McLaren regarding the rumoured talks: “McLaren is not in discussion with Apple on any type of investment. But the nature of our business is that we have all sorts of conversations with all sorts of people that are subject to confidentiality.”
Despite the denials. Autocar understands that Apple is continuing to pursue McLaren. One stumbling block is understood to be the role of Ron Dennis in an Apple-controlled McLaren. Dennis owns 50% of McLaren Technology Group and 10% of Automotive – McLaren’s two operating arms – and is executive chairman of both.
Talks have centred on Dennis taking a non-executive role, with power focused in an Apple-appointed executive chair. There is conflicting information about Dennis’s desire to remain in charge. Some sources suggest he is willing to give up control, but those close to him maintain he still has the desire to pilot the company that he has shepherded since 1981. To break the impasse, Apple might have to raise its current £1.5 billion bid – £1bn for Automotive and £500m for Technology Group. If Apple doubled its bid. Dennis would make £700m personally.
Long-standing McLaren shareholder Mansour Ojjeh is understood to be ready to cash in his 25% holding in Technology Group. Ojjeh’s health has been failing and Autocar has been told it is an “open secret in F1 that Ron has been looking for an investor to replace Mansour”. Bahraini sovereign wealth fund Mumtalakat is also prepared to divest some of its holdings – currently 25% in Technology Group and 55.5% in Automotive. Apple is particularly attracted by the tax-efficient opportunity to invest cash it has accrued in Europe, rather than spending billions in tax repatriating it to the US. Running its planned car business from Europe would be more financially efficient. Some estimates put Apple’s global reserves at £163bn, with possibly £55bn of that available in Europe, dwarfing the estimated £1.5bn to £2bn purchase price of McLaren.
Apple also has a huge supply of cash to pump into McLaren to fund development of its own car and develop McLaren’s four main businesses. McLaren Technology Group and McLaren Automotive each has its own share structure and board. McLaren Technology Group includes Racing. Applied Technology and Marketing. McLaren Automotive is the stand-alone supercar business. Nudging six years old. Automotive has made a highly successful debut in the cut-throat and notoriously unreliable supercar business. McLaren says Automotive has been profitable for the past three years and last year made £23.5m from a £451m turnover. This strong business performance is understood to be attractive to Apple.
Automotive rapidly broke through its 1500-car-per-year break-even point and last year built 1654 carbonfibre-tubbed supercars. The launch last year of its most affordable model, the £126.000 540C, is spurring a major increase in production to 4000 units per year by 2017. Although Automotive might seem the obvious acquisition target. Apple is understood to be keen to buy all of McLaren’s businesses. McLaren’s FI involvement is seen as a new route to market Apple’s core technology products. Strategically, there are concerns that the gloss is rubbing off these products and that competition is stiffening. Despite its image as a technology market leader. Apple has only 15% of the global smartphone market, behind Samsung, which dominates with 24%.
To give Apple’s marketing a boost, a move into FI would raise its global image, particularly with younger smartphone buyers. Apple’s cash could also boost McLaren’s FI budget, which is understood to be around half of Ferrari’s £300m a year. The arrival of Apple as title sponsor would go a long way to replacing Vodafone as McLaren’s key sponsor, the loss of which has been felt hard at Woking. A commitment by Apple to match Ferrari’s budget and push McLaren back up the grid rankings would be a persuasive argument for the highly competitive Dennis, who has to make the momentous decision to sell his shareholdings if Apple is to take control.
Apple’s cash pile also has the potential to move Automotive into a new gear, where it could challenge Ferrari for leadership of the global supercar market. Automotive’s production capacity is capped at 4500 per year on two shifts at the Woking factory, a number that McLaren says is profitable for a long-term future. A second shift of 250 workers has already been introduced to build the 540C, 570S and 570GT. raising the assembly line workforce to 750. However, industry experts predict that McLaren will need to match Ferrari’s 7000-per-year production in the long term to ensure a stable and profitable business. Aston Martin is strategically heading in that direction, targeting 10.000 per year as it prepares a new wave of investment to build a more stable business.
Apple’s cash could easily accelerate expansion to 7000 a year, which will either require a third shift at Woking or, if the expansion is to come with additional models such as an electric SUV or a four-door Tesla beater, a second production line. Since Project Titan will require a new plant, the extra McLaren models could easily be incorporated into a new Apple factory. Automotive is already eyeing expansion and is in the early stages of a £1bn investment programme, dubbed Track22 and announced at the Geneva show in March. That £1bn will fund 15 new cars and derivatives over the next six years, including a new engine range and hybrid powertrains for 50% of those models. McLaren Automotive CEO Mike Flewitt said in March the new model plan included a fully electric powertrain for a future ‘Ultimate Series’ car, a reference to the replacement for the P1 hypercar, which is now out of production after a total run of 375 units. Time will tell if Apple can convince Dennis to relinquish control of his company, but there’s no doubt the cash is on the table and the vision is there.