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.