Why Apple Might Want To Buy McLaren

A report in the Financial Times today claims that the consumer electronics giant  Apple  is negotiating to either make an equity investment or an outright takeover of the U.K.'s McLaren Technology Group. McLaren is the manufacturer of a range of road-going supercars as well as the owner of a struggling Formula One team. Since early 2015, Apple has been rumored to be developing a vehicle of its own through its Project Titan program.

Given that Apple is a company known for making premium mass-market electronic devices while McLaren has built a reputation for creating some of the highest performance cars in the world, why would they want to combine? [Update: McLaren is denying that it's in talks with Apple regarding an investment.]

Building complete vehicles is a very complex process, and as other new entrants into the field have repeatedly demonstrated, the chances of failure are much greater than the odds of success. As a result, a partnership with an incumbent automaker would probably make things a lot easier for Apple. Unfortunately for Apple, it’s successes over the past 15 years may be working against it.

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Chances are most of the medium and large players in the industry don’t want to get steamrolled by Apple. Earlier this year reports surfaced that Apple was in talks with BMW to use the German automaker’s carbon-fiber chassis technology from the i3 and i8 for its own efforts. Carbon fiber provides enormous strength at low weight, a good combination for an electric vehicle. Those talks apparently fell apart, for unknown reasons.

However, if Apple is looking for some automotive carbon fiber expertise it could hardly do better than McLaren. It was McLaren that introduced carbon fiber to motorsports in 1981 with the MP4/1, and the technology is now standard in high-level auto racing. McLaren was also first to market with a road-going carbon fiber car, the 1994 F1, and all of its current road models use this material.

In addition to carbon fiber, McLaren also has significant experience in automotive electronics. The company’s applied technologies division supplies software, electronic control units, sensors, displays, data loggers and more for a wide variety of racing series, including the full standard electronics package for Formula E cars.

McLaren produced approximately 1,600 cars in 2015 and lost £22.6m in 2014, the last year for which it published financial results. The company is owned by CEO Ron Dennis, chairman Mansour Ojjeh and Mumtalakat, the sovereign wealth fund of Bahrain. While McLaren doesn’t appear to be the total financial basket case that most low-volume automakers often are, times have been tough for the company of late.

Sales of the road cars are growing but the F1 team has struggled on the track since adopting Honda’s new engines in 2015. The F1 team has lacked a title sponsor since the end of the 2013 when Vodafone declined to renew its deal. Since it costs several hundred million dollars a year to run a top-flight F1 team, this is no doubt a drain on the company.

The FT report estimates the current value of the company at just £1 billion to £1.5 billion ($1.3 billion to $1.9 billion). For Apple, that would be a pittance from its cash reserves of more than $200 billion and less than the $3.2 billion it spent to acquire headphone maker Beats in 2014. And of course much of that cash is held overseas to avoid U.S. taxes -- putting it to use in a foreign acquisition makes more sense for the company than taking a tax penalty by bringing the money back to the U.S.

If Apple does purchase McLaren it could signal either a change in direction for its internal program to a more high-performance orientation or it could be just getting access to some very cool technology.

One final note: If such a deal goes through, Apple SVP Eddie Cue will almost certainly have to resign from his position on the Ferrari board of directors.