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Can Apple build a 'game changer' iCar?

Assif Shameen
Assif Shameen • 10 min read
Can Apple build a 'game changer' iCar?
Apple may have its work cut out but as the world’s No. 1 company it will take a brave person to bet that it will fail.
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Almost like clockwork, every year for the past few years, a new report has surfaced that Apple Inc, the world’s largest company, is about to enter the car business. In January, shares of Korean auto giant Hyundai Motors surged 28% over two days when reports first emerged the iPhone maker was about to pick it as its electric vehicle (EV) manufacturing partner. The Georgia plant currently produces Hyundai cars as well as those of its affiliate, Kia Motors. Weeks later, Hyundai said it was no longer in negotiations with Apple to manufacture EVs. Last year, there were reports of Apple making a breakthrough in EV batteries that would give it a huge leg up over competitors. Every few months, there are reports of another senior Tesla Inc or Google engineer with EV or autonomous driving expertise joining Apple.

To be sure, market chatter about Apple Car is almost as old as the iconic smartphone itself. Reports of an “iPhone on Wheels” surfaced as early as 2014. Six years ago, news of Apple hiring hundreds of engineers for “Project Titan”, as its secret plan to build an autonomous electric car was called, emerged. Last week, a Bloomberg journalist helped put the iCar rumours on steroids, suggesting in a news story that Apple was pushing for a “full self-driving system” targeting a launch in four years. Earlier reports had Apple initially making an EV and then building an autonomous vehicle.

The latest round of iCar chattering came in the wake of EV mania on Wall Street. EV pioneer Tesla last month became a trillion-dollar firm. It is now the sixth most valuable company on earth. Earlier this month, Rivian Automotive, which has yet to sell a single car, listed on Nasdaq and within days its market value surged to over US$170 billion ($232.3 billion). The stock has fallen 34% since. Other EV makers including Lucid Motors that recently delivered its first car and China’s XPeng Inc that reported stellar earnings last quarter have seen their stocks surge in recent weeks. XPeng’s backers include Alibaba Group Holdings and Qatar Investment Authority.

Imagining the iCar
So, when will we see an iCar? What would it look like? Will Apple, which has an asset-light model and no factories of its own, actually make the car itself or partner with a contract manufacturer like it does with all the other Apple products? Will Apple or its contractors make the car hardware or will Apple just supply the software that will power an autonomous vehicle? And with traditional automakers General Motors, Ford and Volkswagen AG revving up their own EV strategies, does the iPhone maker really stand a chance? More importantly, are rumours of an iCar really true or merely the figment of imagination of a handful of journalists and analysts bullish on Apple stock?

An autonomous vehicle is “the ultimate mobile device,” notes veteran tech fund manager Cathie Wood of ARK Invest. “Where there is smoke, there is fire and the total addressable market is simply too large,” notes Joseph Spak, auto analyst for RBC Capital. “There is a lot of growth potential ahead, and Apple is flush with cash.” Still, even analysts like Spak who are convinced that the iPhone maker is too far down the path of making its own car, say an autonomous iCar is probably years away.

In some ways, Apple is playing catch up with the likes of Tesla. CEO Elon Musk tweeted last year about his attempts to sell his firm a few years earlier. “During the darkest days of (Tesla’s mass-market EV sedan) Model 3 programme, I reached out to (CEO) Tim Cook to discuss the possibility of Apple acquiring Tesla for one-tenth of our current value. He refused to take the meeting,” Musk tweeted. Tesla’s valuation has more than doubled since. Apple could have bought Tesla for about 5% of what the market values it today. “This should have been Apple’s market. Apple should have bought Tesla when they were given the opportunity,” ARK’s Wood noted in a TV interview last week. Tesla shareholders like her are happy that iPhone maker passed up the opportunity and let them make money.

If Apple’s CEO has any regrets, he is not letting on. “There are lots of companies out there that we could’ve bought at different times probably,” Cook said last month. “But I feel really good about where we are today.” Apple has never confirmed or denied that it is working on a car. Cook has repeatedly refused to answer direct questions on electric or autonomous vehicles insisting that Apple’s policy is not to reveal any products it may be working on until they are ready to be rolled out.

Gene Munster, a partner at Loup Ventures in Minneapolis, notes that cars are a natural extension of the iPhone maker’s expanding ecosystem. “Cars will become computers on wheel — a collection of hardware, software, and services,” he wrote in a recent blog post. “The nexus of these elements is what Apple excels at.” Munster sees cars as big tech devices that will have services sold around the hardware with Apple’s operating software holding it all together.

The Bloomberg story said Apple was pushing to accelerate the development of its EV and “refocusing the project around full self-driving capabilities to solve a technical challenge that has bedevilled the auto industry.” Until now, Apple had explored two simultaneous paths: “creating a model with limited self-driving capabilities focused on steering and acceleration — similar to many current cars — or a version with full self-driving ability that doesn’t require human intervention.” It is now pushing for a vehicle with a full self-driving system, with no steering or pedals, by 2025. If a workable autonomous car isn’t ready by then, Apple could either delay the release or initially sell a car with lesser technology.

Apple is trying to change the way customers use a car rather than make one that competes directly with the likes of Tesla or any of the traditional automakers. “It remains our ‘working assumption’ that Apple will, one day, enter the electric shared-autonomy space in transportation,” Adam Jonas, auto analyst at Morgan Stanley wrote in a report last week. “A car without a steering wheel or pedals must be a ‘shared service’ and not an ‘owned car’,” Jonas noted. “We do not believe consumers will own title to a fully autonomous car but will engage in the service as a subscription or transport utility.”

Going autonomous
“The shared-autonomous market and mobility-as-a-service market is large and for sure Apple would be able to monetise freeing up the time of passengers who don’t have to focus on driving,” says RBC’s Spak. Tesla dashboard is a souped-up tablet. Apple’s iPad is the world’s most successful tablet. Spak notes that a key focus in the iCar will be on a large infotainment screen inside the vehicle which will be heavily connected to the rest of the Apple ecosystem. Apple spends billions of dollars every year as it builds a library of movies and TV programming through its AppleTV+ offering — a competitor to Netflix and Walt Disney’s Disney+. It also has its own music streaming service, Apple Music.

Initially, Apple’s autonomous car will compete with Cruise, the self-driving division of GM, as well as Waymo, the driverless unit of Google’s parent Alphabet Inc. Both of these are currently focused on robotaxis rather than electric sedans that Tesla makes. Of course, Tesla has its own robotaxi ambitions. Earlier this year, Tech-focused website Verge reported that Apple had held talks with EV start-up Canoo about a possible investment or even a takeover. Canoo is expected to start manufacturing pod-like microbuses late next year.

Why an autonomous van that could take four years to build rather than an EV which it could have built by now? Apple’s modus operandi is not to be first off the gate or to compete in the mass market but to build premium products with a tightly knit ecosystem that helps to maintain high margins. “While Apple may not always be first to market, its innovation engine, differentiation via vertical integration, and manufacturing and operational excellence have allowed it to leapfrog first movers,” notes veteran Apple analyst Katy Huberty.

Nokia was the dominant player in cellphone handset business with Blackberry as a niche email player. Apple remade the smartphone business by rethinking what smartphones could do. It built a computer to access the Internet, watch movies, listen to music, and had the ability to do email as well as make phone calls. Apple Watch doesn’t tell you just the time, it’s a device that monitors blood oxygen levels, ECG readings and fall detection. Its AirPods will soon be able to monitor your body temperature rather than just enable you to listen to music from your iPhone. Instead of trying to beat Tesla in the EV space, by building a self-driving car Apple is rethinking the whole car experience and linking its entire ecosystem with the vehicle. The ability of passengers to access AppleTV+, Apple Music, Apple Fitness, AppleNews+ as they drive to their next destination is part of the car experience.

Revenue impact
As a high margin premium player, Apple doesn’t want to be the next Toyota or the next Tesla. iPhone, for example, has just under 20% of the total global new smartphone sales but accounts for 80% of the total smartphone profit pool. Apple’s MacBook laptops have less than 15% of the total laptop market but account for two-thirds of the total profits made by laptop vendors.

Loup’s Munster believes like its other devices, Apple would design the car and a third party would manufacture it. Apple’s long-time contract manufacturer Taiwan’s Foxconn Group earlier this year acquired its first electric vehicle manufacturing plant in North America, part of $280 million in deals with EV start-up Lordstown Motors that also includes a 4% stake. Foxconn will start making Lordstown’s Endurance pickup truck at its 6.2 million sq ft plant next year. Foxconn’s forays in EV space has led many to speculate if it is just getting ready for Apple’s next big product launch. Apple has also talked with Canada’s Magna International which builds cars for US and European automakers under contract.

Munster says the revenue impact from autonomous cars to Apple would be huge given the size of the global auto market. “If you assume Apple can capture 10% of the auto market, by selling a US$60,000 car, it equates to US$540 billion in annual revenues,” he notes. That compares to Apple’s expected current fiscal year’s revenues of US$380 billion. ARK Invest’s Wood believes Tesla which has been collecting a ton of data for years now has a head start that it would be hard to overcome for a new autonomous car maker. Nokia and Blackberry did not have similar data advantage when iPhone ousted them from their perch. Apple may have its work cut out but as the world’s No. 1 company, it will take a brave person to bet that it will fail.

Assif Shameen is a technology and business writer based in North America

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