Is Apple planning to build a full-fledged car, the so-called Apple car? Maybe. Maybe not. What we do know at this point is that the tech giant is looking for new growth avenues. The smartphone market is saturating, and Apple’s market valuation has already surpassed $800 billion. Entering small product areas won’t move the needle, though such products may add a few billion dollars to the company’s revenue.
Apple planning to disrupt the auto industry?
If Apple is entering a new market, it has to be bigger than the smartphone industry, which was worth approximately $430 billion last year. The global automobile industry is estimated to be worth $15 trillion, and the manufacturing alone is worth about $5 trillion. According to Morgan Stanley analyst Katy Huberty, the global self-driving car industry will skyrocket to $2.6 trillion by 2030.
Apple has been making moves in the auto industry for quite a while now. The company already offers CarPlay, an in-car infotainment system. Last year, it invested $1 billion in the Chinese ride-hailing service Didi Chuxing. The tech giant has also been working on the so-called Apple car under the secretive Project Titan for at least two years. It was initially rumored to be building a full-fledged car. But the focus of the project was later shifted to developing the self-driving platform first under the leadership of Bob Mansfield.
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Recently, the California Department of Motor Vehicles (DMV) granted Apple permission to test its self-driving systems on public roads in the state. The DMV has allowed Apple to use three modified 2015 Lexus RX450h SUVs and six drivers to test the platform. Apple’s training program for the test car drivers was revealed a few weeks ago. The company had also acknowledged in a letter to the NHTSA last year that it was investing heavily in machine learning and transportation.
Apple car is about the entire transportation experience
So, is Apple building a full-fledged self-driving car or just developing the autonomous driving platform that it could provide to other automakers? The company’s leaked training materials use the wording “Apple Automated System” and “Development Platform.” There is no mention of words like “car” or “vehicle” in training materials. But there is always the possibility of designing the cars at a later stage, once it has developed the self-driving system.
Recently, UBS Securities analyst Steven Milunovich consulted with two Apple experts, Neil Cybart of Above Avalon and Horace Dediu of Asymco to gain a perspective on the company’s plans for the auto industry. Cybart believes the Apple car project is not just about cars, but about an entire transportation platform. The Cupertino company is investing in autonomous driving, artificial intelligence, machine learning, and mapping to build a comprehensive transportation platform.
Cybart told Milunovich that the Apple management fully understands that controlling the whole experience, both hardware and software, is the best way forward. Apple has its own software and hardware for smartphones and computers. The company is expected to do the same in the auto industry. Horace Dediu agrees with Cybart that Apple is basically a design company for which user experience is of utmost importance.
Dediu said Apple’s biggest priorities are product and customer satisfaction. A major challenge before the Cupertino company will be to figure out how to make money with the long life-cycle of automobiles. With its large cash pile, the iPhone maker is well-positioned to capitalize on the long life cycle, said Dediu. According to Steven Milunovich, the car ownership will plummet with the rise of autonomous driving vehicles. Ride-hailing is the future, and Apple may own a large fleet of self-driving cars.
Apple needs to find a Foxconn for cars
Not everyone is convinced that Apple will develop a comprehensive transportation platform. Gene Munster of Loup Ventures, who has covered Apple extensively while at Piper Jaffray, says Apple is several years behind Google’s Waymo and Tesla, which have been testing self-driving technology for years. Apple’s desire to make cars is reminiscent of its plan to make a full-fledged Apple TV, which is yet to see the light of the day.
The tech giant is exploring the car market, but not everything it explores becomes a reality, as we have seen with the Apple TV. If it wants to enter the auto industry in a big way, Apple has to figure out how to overcome the challenges with hardware. Apple has little experience in manufacturing. Most of its products, including the iPhones, are made by third parties such as Foxconn. Apple has to find a partner that can oversee the hardware side of the Apple car, said Munster.
Gene Munster said that to create “superior” experiences, Apple has to build the “actual automobile, combining hardware and software.” But the complexity of designing and manufacturing a car may force the company to integrate deeply with an established automaker or simply make its self-driving systems and apps available to other carmakers.
Meanwhile, Bank of America Merrill Lynch said in a research note to investors that the Apple car could add $1 billion to Apple’s revenues by 2020 and $27 billion by 2025. The research firm’s estimates are based on the assumption that Apple will start selling its autonomous car by 2020 with an average selling point 10% higher than Tesla Model S.