Apple will be a supplier to the car industry, not a competitor

When it comes to the “Apple Car,” some have their doubts. “Veteran technology- and Apple-watcher Horace Dediu… focuses on how hard it is for new entrants to penetrate the car business,” Michael Hiltzik reports for The Los Angeles Times.

“Dediu’s most interesting insight may be that the most important innovations in carmaking have occurred in the production process, not in design. As he points out, contracted manufacturing in the auto industry is ‘nearly non-existent,'” Hiltzik reports. “This is exactly counter to the way Apple makes its products: The company does almost no production of its own and outsources almost everything. Is Foxconn, the company’s big Chinese supplier, ready to gear up an auto production line? If not, then Apple would be getting into a business activity where it really has no home-grown experience.”

Hiltzik reports, “Tech consultant Steve Crandall’s… guess sounds right: ‘No, it won’t happen as a car. But there may be other connections through Apple’s growing ecosystem.’ In other words, Apple will be a supplier to the car industry, not a competitor. And the profit margins from Apple-branded automotive options could, indeed, be enormous.”

Read more in the full article here.

[Thanks to MacDailyNews Reader “Rainy Day” for the heads up.]

38 Comments

    1. I think it would be safer for Apple to do something like that in order not to antagonize the auto industry. Although I’d like to see an Apple concept car, it would be nice if Apple only designed components for other manufacturers. Apple would be able to expand its customer base. Of course, Apple would theoretically have plenty of competition from the likes of Google and Samsung.

      1. Oh boy! We can get ahold of great Apple technology and bastardize it and kluge it and ruin the user experience and ruin Apple. We can now pull them down to our level if they let us use it.

  1. FINALLY. Somebody makes some sense. The “Apple Car” is a wet dream for people who need to get outside more often. Apple as a supplier–software, batteries, integrated control systems–makes all kinds of sense. Sure, perhaps you’ll see the whole car a couple of decades down the road, after they learn to make the pieces. But the money is to be made in the pieces.

  2. No, not exactly… Today’s passenger cars are like smartphones before iPhone re-defined the concept of a “smart” phone. Before iPhone, most existing smartphones were the existing big phone makers being “innovative” by shrinking the PC to fit in your hand. It had a tiny keyboard, a stylus for a mouse, and an interface with drop-down menus.

    In a similar way, today’s “innovative” electric cars are essentially fossil fuel car designs, with an electric motor replacing the combustion engine. That’s what existing big auto makers know; the momentum of history is why electric cars mostly look and operate like what we recognize as a traditional “car.”

    I agree that Apple will probably NOT own the facilities that produce cars with the Apple brand. But it will be MUCH more than Apple supplying tech to the car industry, and putting an Apple decal on the dashboard of a Ford or Chevy or even BMW that says “Powered by Apple.” Apple will create and sell the “Apple Car,” like ti does an iPhone. It will be the Fords and GMs of the world that become Apple’s Foxconn for the auto market.

    1. Maybe I am losing in terms of tech imagination but what precisely would change fundamentally from the present base design for electric or hybrid cars. I agree that old car makers like cart makers before them find it difficult to think too different but Tesla which is transforming the electric sector is doing so by establishing a serious infrastructure advantage while perfecting electric powered cars setting new standards but it isn’t exactly transforming the oncept of what a car actually is. I can’t quite see what that total transformation of the car concept you hint at would be in reality, especially as Apple tends to take existing products/concepts perfects and expands them combined with extended infrastructures to give a superior overall experience, somewhat like Tesla is already doing clearly having been guided by Apple philosophy in the first place.

      1. Electric motors, unlike combustion engines, can be controlled with extreme precision. An electric car can be designed to have smaller motors at the point where the propulsion is needed, at the wheels. Those separate motors are controlled precisely by a central “brain,” including subtly optimizing their wheel rotation rate, as the car goes through turns or loses traction in slippery conditions. It also eliminates the bulk, weight, inefficiency (friction), and mechanical complexity of a central “engine” with transmission, drivetrain, and axles to distribute power to wheels. Imagine a car that does not need to account for those “traditional” components. Biology puts muscles at the point of need, which are controlled with precise coordination by a central brain.

        Also, if the car is pure electric, it has a motor (or set of motors) and a battery to store potential energy electrically. Design ONE electric car, and the source of power becomes just configuration option for customers. On the Apple Store’s Apple Car options screen, choose a hydrogen fuel cell, or a small combustion engine (gasoline, diesel, natural gas…) with fuel tank, or a secondary battery to extend “plug-in” range, or some other electrical power tech we don’t have yet. The Apple Car remains the same; only the means to charge its main battery changes.

        I’m sure Apple has dozens of ways that an electric car does NOT need to be designed like a traditional car. Tesla makes a highly optimized electric car with a traditional car design. Apple can redefine it. Like Mac redefined personal computing, iPod redefined the portal media player, iTunes redefined music retailing, iPhone redefined the mobile phone, iPod redefined the tablet computer, and Apple Watch will redefine the thing we wear on our wrist.

        1. Lots of research has been done on electric hub motors and a company called Brabus has a concept car which uses them to deliver all wheel drive.

          Personally I don’t want a car with the unsprung weight of a heavy electric motor at each wheel. Good luck getting the suspension and handling smooth on that vehicle. Look at the drive train of the tesla model S – They already figured all this out and have been down the path already.

            1. I’m talking about pure electric and the idea of using an electric hub motor at the wheels.
              Its a poor design.
              You want the weight center line as much as possible and you certainly don’t want the weight of the motors at the end of your suspension control arms where the wheels are.

            2. That’s not true. You want the CENTER OF MASS to be centered as much as possible, between ALL the wheels (not just side-to-side). Most traditional cars with a front engine are front heavy (especially those with front-wheel-drive). And also you want the center of mass to be as low as possible. Most traditional cars are more top-heavy than optimal. Note that “sports cars” are flat and low, and many have mid-mounted engines (right behind the two seats) to help balance the weight. Those design limitations can go away with an electric car, optimally designed.

              The ideal car design has the equal weight directly on each of the wheels. With that weight as low as possible. This improves traction and handling. In other words, having an electric motor at each wheel that powers that wheel is an excellent design, not only for functionality but also for performance. The car will feel like a fancy go-cart, without the driver needing to sit six inches above the ground. Electric motors scale efficiently from HUGE (locomotive) to ultra small (the one inside your hard drive).

        2. “Apple can redefine it.”
          I don’t think so. E.g. Apple fundamentally changed the “phone”, from a phone with a few clunky extra functions to a mini-computer than also does phone calls. The base task COMPLETELY changed.
          A similar transformation is happening with the watch – an amazing multi-function device. If I NEVER used my Apple watch to tell time, it would still serve me in numerous really useful ways. (Of course, I will also use it to tell time.) Again, the base functionality has been profoundly shifted.

          But with a car, that’s not going to happen. It’s a box that you sit in that has wheels that you can use to travel over roads. Making it electric, or having a pretty Apple interface isn’t going to change the basic function. So I don’t see that it is worth it to Apple to be involved in the manufacture of that box and its wheels. Interface, yes. Box, no.

    2. The existing automobile manufacturing infrastructure will definitely not become contract manufacturers for an Apple car. They don’t have the nerve and are too proud.

      1. Of course they will. All it takes is ONE as a starting point. And that “one” will do it, because it’s not doing as well as “#1” and needs the Apple contract to survive. Then, others will want a piece of the Apple action, to remain competitive. And soon, there will be a bidding war to get Apple’s contracts. “Pride” is mostly irrelevant for for-profit corporations with stockholders.

    3. Yes, cars are just like pre-iPhone smartphones. Except for wheels, engines, weather-sealing, safety, visibility, performance, service centers, human factors, endurance and about a hundred other things. As bad as a crash of Yosemite might be, a crash of a car is way worse. Look, I’m a big Apple fan, but they have zero core competence in this area. Smirk about the ‘fossil’ carmakers all you want, but they make products that will operate at highway speeds all day long. They’ll routinely give you over 100,000 miles of safe operation. They’ll give you reasonable survivability in an accident.

      So Apple knows how to use contract manufacturing. That’s got zilch to do with anything.

      1. And Apple knew “zilch” about portable media players, until they did. And knew “zilch” about mobile phones, until they did. And knew “zilch” about music retailing, until they did.

        Why Apple is hiring new employees with the necessary knowledge and experience? Because Apple will know “zilch” about cars, until they do…

  3. This guy must have read my earlier post! 🙂

    ferg
    Monday, February 23, 2015 – 4:08 pm · Reply

    What if they’re not building a car, just trying to improve the way a car is operated!

    What if they have a version of our fav operating system that could control a car, connect to the Internet and your home network!

    What if the system could send instructions to all the components via Bluetooth and alleviate the need for wires and cables!

    What if this is the Project and not to actually build a car of their own, just make all the cars available in the market now much better and have them work together with your iDevices!

    An Apple System that fits all cars. Manufacturers simply purchase the system from Apple and value add with their own Apps etc.

    1. No, running everything via Bluetooth is too slow for modern cars. These are machines which take data from wheels, engines, transmissions, and make instantaneous changes to fuel/air ratios, valve timing, wheel speed/slippage, etc. What Apple can do though is replace QNX (now owned by Blackberry) as the dominant computer and software provider to the industry.

      The most complex part of a car is its electrical harness, computer, and sensor system. Add to that the infotainment center, all the electrical components, and traditionally mechanical components going electrical and computer-controlled like suspension systems and you need much more flexibility and processing power.

      Apple could come in and revolutionize vehicle electrical control systems, so much that it could dominate the industry very quickly. Just imagine saying goodbye to the clunky interfaces prevalent in virtually all modern cars and replacing them with something Apple-designed.

  4. Tesla has shown it is real tough to start from scratch and challenge the whole auto industry. Electric didn’t just boom after Tesla launched.

    Hiltzik is probably right, where you pick your niche where you have competence and margins in your favor.

    1. But Tesla didn’t expect a sudden boom in electric cars after it launched, because they are smarter than that. Selling an electric car for $60,000+ (and usually significantly more) isn’t going to get you very many customers. Tesla has also struggled with selling its vehicles, not because they aren’t good vehicles (they’re fantastic, actually), but because Tesla doesn’t have a traditional dealer network and thus violates many states laws. It has managed to work around those in most states, but there are still some where Tesla can’t sell I think.

      However, Tesla is bringing some significant innovation to buying and servicing a car that the auto industry could use. Elon Musk knew it would be a long haul, but Tesla is doing just fine.

  5. Around the year 1900, bicycle maker Orville Wright suggested to his brother Wilbur that they build an automobile. Too complicated, answered Wilbur, because an automobile has to have a differential and a gear box, including reverse gear, as well as a steering system. “Better to build something simple,” he said, “like an airplane.” This is a true story.

  6. “Contracted manufacturing in the auto industry is nearly non-existent”.

    Well, sounds like it is ripe for change. A lot of industries are organized a particular way for historical reasons. But it does not mean the “legacy” is the optimal arrangement for the future. The legacy might even create what is called “path dependence”, preventing constructive, innovative, change. Suppose someone can do to the car what Swatch did to the traditional wristwatch years ago — basically simplified the entire mechanism, made possible by “technical” advances (ie, quartz crystals), and allowing mass production of superior timepieces at cheaper prices. I would not dismiss the possibility that someone figures out how to re-imagine car design and production just because Detroit never figured it out.

    1. Apple took advantage of a vibrant contract manufacturing industry for consumer electronics. It served almost all brands and still does.Such an industry will not emerge on the hopes of one customer, no matter how great, and Apple isn’t going to bankroll an industry which supports emerging competitors.

      1. Personally, I see cars of the future being more like consumer electronics than modern day gas combustion engines on wheels.

        You really don’t think Apple could entice any of its suppliers to take a chance on this sort of potential business opportunity? I would think they would hate to miss out on the chance. Apple could buy components and own the assembly line, and the Chinese contract manufacturer could supply the workers and engineering PhDs to make it happen. Or they could collaborate on a high-tech robotic assembly process. I don’t see it as impossible. The challenge actually plays to Tim Cook’s strength.

        Also, if Apple does come up with a car, we can be sure there will a plenty of other companies following close behind. Just like always. Everyone will try to get in on the game once Apple shows them how to do it.

        Apple always plays the long game, in case no one has noticed. I just do not see the idea of Apple designing and selling a car as being outside the realm of the possible. Although that does not mean it will happen.

        1. The production lines for 1/4 lb phones are a lot different from the production lines for 4000 lb automobiles. It doesn’t matter if Apple can convince existing electronics manufacturers to start doing automobile work, the point is that the contract automobile manufacturing industry is very small and it has not developed as a significant source for mainline car companies for some reason, probably economic.

          So, to build significant numbers of cars, Apple has two possible paths. One, like Tesla, build the factory of the future for the car of the future with Apple employees, replete with all the tasks associated with running a manufacturing facility, then build to order, like Tesla, with zero inventory of finished cars. Or, two, establish a manufacturing partner with no experience building cars and try to get that going. That didn’t work too well for sapphire and it would be a huge risk. And, if successful, would establish the model for future auto manufacturing, to be used by its own competitors.

          All that having been said, who knows. I agree with you, once the ICE is gone, a car starts looking a lot like a big computer with comfy seats. If you don’t build acres of inventory, sell through a dealer network and work the overdesign problems (most car trips have 70-80% vacant seats and most cars are driven less than 50 miles per day) there is a lot of disruption possible in the butt relocation business. Right now transportation is the second largest expenditure for most families, after housing and I think the time is right to cut out all the fat in that system and drop the cost to the user significantly while allowing for good margins to the seller. Go Apple.

    2. Sorry, not gonna happen. First, the Smart Car has been largely considered a failure, especially because the price is fairly significant for what you get. Second, retooling a plant for a new car cost millions of dollars. You can’t share lines with some other car; the vehicles basically have to be slight modifications of the same overall car (think 2 door and 4 door variants of a BMW 3 series, for example).

      Finally, there aren’t any state-of-the-art vehicle manufacturing factories sitting around waiting for someone to hire it to build their car. Basically that means most production capacity is in use at any given time (some ebb and flow, obviously). So even Apple wanted to contract out assembly, there’s no one to sign the contract.

  7. When has Apple ever been a supplier of technology to other companies? If we’re to use that argument Apple wouldn’t be selling phones right now, they would have sold technology to Motorola or Nokia. And so far car companies have been reluctant to partner with tech companies. I see no evidence of a partnership on the horizon. Personally I think Apple is staffing up and doing the necessary R&D to eventually acquire Tesla.

  8. Horace Dediu is a pretty sharp guy who puts a lot of thought into his analyses. Nevertheless, I’d have to ask him why he thinks that Apple would go about designing and manufacturing an automobile the same way the other auto makers do. Odd are that some manufacturing processes will be quite different.

    Furthermore, Apple does know how to manufacture. They tell their suppliers how to build their products. They don’t manufacture because they don’t want to manage the infrastructure and human capital necessary to manufacture in volume. They also want the flexibility to turn production on and off at will without incurring the risks and costs associated with idle factories (not that they’ve had that problem as of late).

    And I don’t buy the argument that Apple wants to be an electronics supplier to the auto industry. They will provide specs and license key technologies. But they have little interest in building hardware for the existing auto makers. Apple wants to own the customer experience. They can’t do that by selling hardware to the auto makers. Apple wants to sell directly to the end user. As unlikely as it sounds, that means a car.

    1. And you can’t turn production on and off for an auto plant. The plant would sit empty. A vehicle manufacturing plant can’t just contract out with someone else to build their car next week, because a large part of the plant would have to be retooled to build the next vehicle. And that costs car companies millions of dollars when they resign their own models.

      The only way Apple could be a car manufacturer is if Apple bought the plant and built Car itself.

  9. I think Apple is studying manufacturing itself. First gen robots to build the iPhone 6 demonstrated they were not precise enough. They were reconfigured automotive robots. If apple could create better robots, they could better meet demand for themselves and also sell the robots to the auto manufacturers.

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