Can Apple succeed in the car business?
The Wall Street Journal reported last week that Apple has committed to trying to produce an electric car by 2019. Some see it as assuring the transformation of the auto industry, while others see it as Apple’s Waterloo.
The report says Apple is about to triple the workforce that has been tooling on the project for several years. As Tim Cook told Steve Colbert, “We looked at a number of things along the way and decided to put our energies into a few of them.” The car will be an electric, not self-driving, and will sell for about $75,000. That would put Apple in direct competition with Tesla’s current line of luxury models, at the very moment when Tesla is hoping to go down-market with the Model 3, which is expected to cost $35,000.
Most of all, Apple’s move represents the voracious expansion of Silicon Valley and the sense that digitalization of everything is possible. It’s one thing to reinvent the personal computer, the telephone and the music industry. But automobiles? Next to oil, cars are the second biggest industry in America and have been established for more than a century. There have been innumerable attempts by smaller companies to break into the magic circle of the Big Three U.S. automakers. But then, Apple is the biggest corporation in the world, with a cash-on-hand nest egg of $203 billion, so it’s in a position to take the risk. And don’t ignore Tesla, which has started from virtual zero and now seems to be in a position to challenge the major auto companies in at least some of their brands.
But therein lies the difficulty for Apple. It will not only be challenging the Big Three and the Japanese and European models that are so well established, but Tesla as well, which seems to occupy the niche that Apple will be fighting for. And then there’s Google, which is almost as well-financed and has been making noises about getting into the business of self-driving
It’s going to be a struggle. Were Steve Jobs still alive, it might be tempting to say that his talent as a product designer would carry the day. (Although Jobs had a few notable failures, too, like the Apple Lisa.) But is Tim Cook really the man to carry Apple into the country’s biggest industry with a sense that it can be remodeled? Opinion is now divided.
“The shift to electric reduces the mechanical complexity of cars a great deal,” media and tech analyst Benedict Evans wrote in his blog post titled “Ways to Think About Cars.” He added: “No transmission or internal combustion engine means far fewer moving parts. That may also change the sophistication and capital required to design and build cars, which, in turn, may change who can build them and how they get built. Gear boxes and premium sports transmissions turn into software in the same way that electromechanical calculating machines or cameras got turned into software.”
“The industry is on the verge of a fundamental shift from combustion engines to electric ones,” echoes Ben Thompson of the website Stratechergy.com. “Thus, if Apple were ever to start making cars, from an industry perspective right now is just about the perfect time.”
Several auto makers are now buying Apple CarPlan, a system that integrates iPhone functionality with a vehicle’s infotainment system. This is what has encouraged Apple to get into the business itself. But the question of whether it is taking on more than it can chew at the hardware end is still up for debate.
“Although it has an outstanding supply chain that would be the envy of any company on the planet, it has never manufactured anything on the scale of a motor vehicle, or for that matter even remotely close to it,” Christopher Morris wrote on the ValueWalk blog. Then again, plans seem to be to produce only about 10,000 models in the 2019 inaugural. Apple has no manufacturing plants in the United States. Everything is now done in China. “Design in the U.S., manufacture in China” has become the company’s formula for success. Can this be carried through with automobiles?
With a pot of $203 billion in cash, there is a world of options that wouldn’t occur to ordinary companies. Apple could simply buy a smaller auto manufacturer and turn its facilities over to producing its new brand. BMW is frequently mentioned as a target. There is grumbling of discontent that some of this ready cash should be returned to stockholders, but Apple’s stock is holding steady at about $110. With the possibility that the company might become a player in the auto industry, many are predicting shares could rise to $160. After all, Tesla is now selling at just under $250.
On the other hand, there is speculation that Apple could be wandering into a quagmire, in that it will now be subject to a thicket of government regulations. This is something the company has never encountered in manufacturing iPods and iPhones. One commenter in The Wall Street Journal wrote: “Car companies cannot build the cars they want to build. They cannot even build the cars we want to buy. Instead, they have to build bad cars because the rules and regulations require them to build bad cars.
“Imagine if the government mandated that Apple had to build cellphones that average 3 weeks of battery life, could be no thicker than one-quarter inch, had to survive a 50-foot drop onto a concrete floor without damage and had to run on solar power. How ‘innovative’ would Apple be under those circumstances?”
All this awaits Apple in its venture into the auto industry.