Apple's aura of success puts more pressure on itself.
With the iPhone, Apple developed the most successful product ever. But for now, Apple faces the daunting task of creating tens of billions of dollars in profits to prop up its stock price.
To secure market expectations for the next decade, Apple also needs to generate at least another $150 billion in profit value.
So Apple set its sights on the auto market.
In many ways, the convergence of electric vehicles and autonomous driving creates an attractive market opportunity.
01
Autonomous driving, Apple Car and user experience
Which one is the core of Apple's car?
Apple's own capabilities aren't necessarily suitable for developing self-driving cars.
Although Apple has a deep accumulation in software and hardware development, its ability in machine learning is not strong. Developing self-driving cars is almost at odds with what Apple has always excelled in.
Of course, for Apple, this may not matter.
Apple may just see self-driving car technology as a way to enrich the human car experience, just as it uses lithium batteries and RISC chips to unlock new smartphone experiences.
That said, it doesn't particularly matter who will provide the self-driving technology for the car, what really matters is what Apple can do accordingly.
The essence of autonomous driving technology is to abstract the concept of the car into a spatial concept, into the space that the user is in for a period of time - the internal space of the vehicle can become an entertainment space and a creative space.
That's where Apple excels.
Rumor has it that the Apple Car has no steering wheel or pedals, and that the interior will be designed with U-shaped seats to create a limousine-like experience.
The goal of this layout is to create a social space that converges inwards, rather than the usual outward-facing seating layout.
Apple will spend its mind on the aesthetic design and functional implementation that affects the user experience, such as hardware, software, interior, sensors, ride quality, etc., and outsource the remaining part of the car, and the automatic driving technology is naturally among them.
Over the past few years, Apple has been developing its own self-driving cars, but progress is unclear.
Apple has been testing autonomous driving in California since 2017 and is expanding its scale. In June 2019, Apple acquired self-driving startup Drive.ai.
At present, Apple has more than 60 test cars on public roads.
According to the statistics on the number of DMV departures from the takeover in California, there is still a gap between the mileage of Apple's test car takeover and industry leaders such as Cruise and Waymo.
But that doesn't mean Apple can't catch up with its rivals. In the case of diminishing returns on driving data, the problem of autonomous driving technology is far from being solved.
Illustration: Machine learning model performance improves as the amount of data increases
While Apple's AI capabilities aren't as well-known as Google or Facebook', its product applications have increasingly relied on advanced machine learning capabilities such as facial recognition, health tracking, Siri, translation, handwriting recognition, and AR capabilities.
Apple also has experience with machine learning hardware, and most of its devices now include dedicated hardware for AI-driven functions.
The more self-driving cars require tight integration between software and hardware, the more likely Apple is to succeed.
Much of Apple's hardware power is focused on low-power chips rather than the highly parallel processing units used in machine learning.
Apple's operating system has long been considered the best operating system, and turning it into a mobile phone product is a big reason for the iPhone's great success.
Since then, Apple has also applied this tightly integrated combination of hardware and software to laptops, tablets and watches with great success.
Perhaps, Apple hopes to expand its hardware and operating system to more user experience scenarios, providing consumers with cross-device compatibility and the same experience, while the car is just another device.
If it wants to succeed in the automotive space, Apple needs to provide a better user experience.
Apple excels at delivering a great user experience, and self-driving cars will allow users to focus on the in-car experience rather than driving the car.
Considering Apple's play in the mobile phone market, Apple may try to closely integrate important components in the value chain, such as batteries, hardware, software, interiors and styling styles, while outsourcing the lower links in the value chain, such as powertrains and chassis.
Illustration: PC and iPhone technology stacks
When self-driving cars act as mobile office/entertainment spaces, there is more emphasis on the importance of software and potentially creating a new platform for application developers.
Compared to other companies in the automotive industry today, Apple has much more experience in promoting the development of the third-party developer ecosystem.
Illustration: Automotive technology stack
Apple is not only a consumer device, a fashion declaration, but also a conspicuous consumption.
Again, this implicit culture seems to work just as well in the automotive market.
Cars are both aesthetically designed and status symbols – buying an Apple car will make people feel very faceted.
Apple is reportedly reviewing every detail of automotive engineering and manufacturing, possibly to figure out where it thinks it can add value.
For example, they are developing improved battery technology to increase vehicle range. This is also reasonable, because battery technology will be an important factor in determining the cost and performance of the car for many years to come.
Apple's experience in machinery and equipment is also limited, and it is not reasonable to expect Apple to have a major subversion in conventional car design.
Apple is planning to work with manufacturing companies, which also shows that Apple continues to pursue a strategy of outsourcing low-value production links, while Apple itself focuses on high value-added links.
Hyundai has been mentioned many times as a potential partner for Apple's car manufacturing, but it is debatable how much the value of working with Apple is for these manufacturers.
Relatively speaking, Apple cars are expensive, so sales will not be too high. Apple can always get the most profits, but the profits that manufacturers can get are relatively limited.
Although Hyundai Can produce cars of reliable quality, from Apple's point of view, it just wants a partner, which can not only mass-produce high-quality cars for it, but also better if it can listen to Apple's arrangement.
Hyundai has concerns, also because the deal with Apple will not bring them much benefit, and it is foreseeable that the order volume of Apple cars will not be attractive to manufacturers.
Apple has also approached Nissan, but the two sides did not take long to talk about the collapse due to the terms of the proposed deal. Nissan fears becoming an Apple supplier.
Apple also reportedly visited Foxconn due to the difficulty of finding a suitable car partner. Foxconn, a major assembler of the iPhone, has also recently launched its own electric vehicle chassis and software platform.
This also shows that automotive supply chain companies are responding to market changes.
In addition, Apple has also been in talks with LG Magna e-Powertrain, although the latter's manufacturing capacity is relatively weak. Moreover, Apple also negotiated with electric vehicle company Canoo in 2020, but the negotiations have not progressed.
02
The value of the Apple Car
Compared with traditional fuel vehicles, electric vehicles lower the threshold of the automotive industry.
New entrants like Apple, and even Xiaomi, still have the potential to succeed.
With the passage of time, car companies have become more and more dependent on suppliers, which has also lowered the threshold of the automotive market.
Companies like Tesla have been able to enter the industry by initially assembling components made by suppliers, which is much easier than designing and manufacturing tens of thousands of components.
In 2014, Apple began working on electric vehicles, and more than 1,000 employees were involved in the project. However, the auto project has been plagued by the mobility of people at the top.
Recently, there have been reports that the Apple car team has been dissolved, which has also made the outside world doubt whether Apple cars can be listed as scheduled.
Apple cars are said to be available in the 2025-2028 range, or even later.
Considering that Apple has been involved in electric vehicles since 2014, this timeline is actually too long. By the time Apple auto went public, the electric vehicle market pattern had long been fixed.
From this timeline, Apple will not have a definite listing commitment until it launches self-driving cars.
The strategic logic of Apple's entry into the auto market is based on the usability of autonomous driving technology, and it is reasonable to judge so. While autonomous driving technology is constantly improving, it is still unknown when it will be applied on a large scale.
In addition, the value of Apple cars will depend on whether Apple can develop a unique value proposition and what kind of business model it chooses.
The licensing model is actually very suitable for Apple, and it is also a way to extract value from the automotive industry value chain with less risk, but Apple is unlikely to hand over its own brand to other companies.
What Apple wants to do is high-end cars.
As a result, Apple cars cannot replicate the huge shipments and higher profit margins that can be achieved on consumer devices.
But then again, whether Apple Cars can replicate the successful experience is in itself a very challenging opportunity.
Considering the strength of fruit powder, apples in any new field seem to be successful, and many fruit powders do not consider product quality or price.
Some say that the first car Apple releases should be fully autonomous, so it can venture into food delivery and robotaxi segments.
Getting involved in the Robotaxi segment may seem like a good option, but starting a food delivery business seems unlikely. The food delivery business is more concerned about cost, which is not in line with Apple's usual style.
It also seems unlikely that Apple would operate its own Robotaxi fleet service, as this is an operation-intensive business with potential risks to economic performance.
Taxi/carpooling is a commodity service that faces price competition as long as there are multiple strong operators.
Illustration: Taxi profit per unit distance
Robotaxi services can improve the market economy by eliminating driver costs, but it also depends on whether Robotaxi is a commodity service or a monopoly.
If only one company succeeds in developing self-driving technology, it should be able to achieve high profit margins due to the lower cost compared to ordinary taxis.
If a company offers differentiated services such as safer and smoother rides, it can also make high profits by charging higher prices.
As Waymo, Cruise, and Tesla continue to move toward self-driving, the Robotaxi service could end up being a boon to consumers and not bring much value to service providers.
Illustration: Profit per unit of distance for robotaxi services
Overall, the economy of transportation is poor, and most automakers are no exception.
However, with the increasing importance of electronics and software and the gradual rise of electric vehicles, the profitability of the automotive industry has the potential to rise.
Illustration: Company revenue and market capitalization
GM expects to increase its margin to 12-14 percent by 2030, driven in large part by a new portfolio of businesses that GM estimates to have a margin of more than 20 percent.
By 2030, GM revenue is expected to grow to $275 billion to $315 billion, and the new business portfolio is growing by about 50% per year.
Chart: Performance of GM's new business portfolio in 2030
Apple cars can be sold not only as merchandise, but also as a new platform for Apple to generate potential service revenue.
Potential services can be subscriptions on the App Store or services such as insurance.
Assuming Apple is a segment supplier with high profits and related service revenues, the current value of Apple's automotive business could be valued at $100-200 billion.
While this is a huge opportunity for most companies, it is nothing more than a negligible number for Apple. Especially considering that it will take more than a decade to advance the automotive business, there is no doubt that this is also a high-risk opportunity.
If Apple's car is not performing well or there are safety issues in the self-driving system, it will damage the Apple brand, which is also an issue that Apple must seriously consider.
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