The "Death" of the Apple Car

The articles in this edition were all written by Wu Qingcai, a reporter of this newspaper

Editor's note/ After ten years and tens of billions of dollars in investment, Apple's car-making project finally failed and became a sacrifice in the era of Apple's AI.

Recently, Apple was revealed to have decided to cancel the electric car project in an internal meeting, which is considered to be the most ambitious project it has ever had. Ten years of building a car, but it ended in a ten-minute internal meeting, which can be described as a "scribbled ending".

However, there is no official proof of the "death" of the Apple car. As of now, Apple has not officially announced its end, just as there was no official statement on the start of Apple's car-building plan that year.

Ironically, Tesla CEO Elon Musk reposted the news on the X platform with a "tribute" and "cigarette lighting" emoji, and the capital market readily accepted the matter, and Apple's stock price rose 0.81% on the same day, with a market value of $2.8 trillion. Perhaps in the hearts of many people, in countless expectations and disappointments, the Apple car has long been "dead", but it was buried on the same day, and Apple finally did not have to be PUA back and forth by the car.

At the same time, the SU7 launched by the Xiaomi car next door after three years has begun to sell well, and on the day of its release, the Xiaomi car App also took advantage of the trend to top the free list of the Apple Store, as if it had become a shameful mark of the defeat of the Apple car.

Why is it that Apple, a technology giant with the highest "people, finance, and technology," cannot build a car? Why does Xiaomi succeed in building a car after investing 10 billion yuan in three years, while the Apple car, which has invested $10 billion and spent 10 years, has been aborted? The iPhone has redefined the mobile phone, so why can't the Apple Car redefine the car?

The defeat of the Apple car has left endless sighs and sighs, but also left profound lessons and experiences, and many questions to be answered. In this issue of business cases, the reporter of "China Business Daily" will explore the reasons, lessons and enlightenment behind the failure of the Apple car with you.

1. The innovator dilemma

High above the horizon

Come to think of it, how long has it been since we've seen Apple launch a revolutionary product that is leading the way in the industry? Some people say that after Jobs, Apple's current CEO Tim Cook has not succeeded in launching an epoch-making product.

Under Steve Jobs' leadership, Apple established itself as an innovative brand that was ahead of the times, changing the way people listen to music with the iPod and redefining the phone with the iPhone. Apple, which was at the forefront of its time, became synonymous with "geek". However, it hasn't done so for a long time, 22 years since the iPod was launched and 17 years since the iPhone was launched.

It can be said that Apple's image as a high-tech brand and its ultra-high profit margin are supported by its image as an industry pioneer and innovator, such as its ultra-high brand appeal in the world, ultra-high product premiums comparable to luxury goods, and ultra-high market value of nearly $3 trillion.

This kind of brand positioning and image, Apple has been trying to maintain. Therefore, every year when new products are released, Apple works hard to launch some micro-innovations, but it is often complained by the industry as a toothpaste-squeezing innovation.

In the eyes of many people, Cook values the feedback and feelings of investors and consumers, treats employees with kindness and gentleness, and always cooperates with employees and users when they ask for a group photo, and is willing to answer every question. It is very different from Jobs's paranoid, extreme-minded geek style.

We see that behind Jobs, most of the important innovations in the mobile phone industry are not led by Apple, such as folding screen mobile phones, under-screen fingerprints, face recognition, high refresh rate screens, etc., and even Apple has not followed up on these innovations so far.

What Apple is better at today is to integrate proven technologies that have been fully tested in the market to ensure market acceptance and product success.

During Cook's tenure, Apple has also successively launched new products such as Apple Watch, AirPods, and HomePod, but most of them use ready-made leading technologies to launch fashionable, easy-to-use, stable and reliable products, although these products have not subverted the industry and caused consumer madness like iPhones and iPods, but they are enough to make it gain a firm foothold in this field and even rank among the forefront of the industry.

This has supported Apple's nearly $3 trillion market capitalization, the world's second-largest market capitalization.

"Cook is more of a great product and marketing leader than Jobs. A technology industry observer who has been tracking Apple for a long time told reporters that in fact, Cook still has Apple under his rule, and is good at launching reliable products and micro-innovations using mature technology, making it difficult for it to launch disruptive technology products, such as Apple's blockbuster new AR glasses vision Pro was pinned on high hopes, but the market performance was average, and the return rate was more than half.

Today, the mobile phone business, which accounts for nearly half of the revenue, is encountering a strong challenge from domestic mobile phone brands, Apple Watch, AirPods, etc. are difficult to provoke the performance beam, Apple urgently needs a disruptive product to form the company's second growth curve and reshape the innovator's "golden body", to continue the passion of Apple followers and attract the worship of new believers.

Electric vehicles, with their high-value and autonomous driving, intelligent cockpit and other technological attributes, as well as a broad market space, have become the best choice. And if you want to do it, you have to do a big ticket, and you have to create a car that has never been seen and subverts the industry. Cook hopes that the Apple Car will become One More Thing, redefining the car.

But this is actually incompatible with the numerology of the apple under Cook's rule, and it is awkward everywhere, just like a swordsman who wants to be the best in the world of swordsmanship. The above-mentioned technology industry observer said that from this moment on, the end of the Apple car was already doomed.

Musk has actually done it to redefine the car. Tesla's Model S in 2012 and the Model X since then have taken the world by storm and led the EV market. If Apple wants to reinvent the times, it needs to make more disruptive products.

In 2014, Apple launched the Titan program, giving full play to its "money power" to poach a large number of companies from Google, Mercedes-Benz, Tesla and other companies, and started its ambitious car manufacturing plan.

Half of Titan's employees come from Apple's consumer electronics team, which wants to build cars in a new way. The team came up with radical ideas, such as making the car a mobile living room, eliminating the steering wheel and pedals inside, keeping only a central screen, and discussing the possibility of passengers sleeping flat on their backs in the car. What's more breakthrough is that when mainstream car companies are still working towards L3 level autonomous driving, Apple intends to directly cross L3 and L4 to build a L5 level fully autonomous driving car.

Just like running fast before you know how to walk, Apple's radical idea is obviously going to hit a wall in the mature automotive industry. Inadvertently, Apple's car has encountered severe technical challenges, high cost pressures, and uncertainty about market acceptance.

In the eyes of the outside world, it is not difficult for Apple to build a car. In today's automotive industry, it only takes about 4-5 years to build a car with abundant cash flow, from market research to manufacturing.

On the one hand, Apple has a rich reserve of vehicle manufacturing patents. Since 2000, Apple has published more than 250 patents related to smart cars, covering autonomous driving technology and related sensors, lidar, projector systems, chassis and body-related suspension systems, lighting systems, seat bodies, and steering systems, according to Patently Apple. At the peak of the project, Apple Auto had more than 5,000 R&D personnel alone.

On the other hand, Apple's supply chain has deployed in the automotive field. Since Apple started to build cars, Foxconn, Luxshare Precision and other companies in its core supply chain have entered the automotive field, and it is not difficult for Apple cars to be listed. It can be said that everything is ready, only mass production is needed.

The same mobile phone giant transformation car,Xiaomi can hand over 80 points of operation within 1000 days,In addition to pragmatically focusing on the current technology integration,There is no high ambition,There is also a big help is the supply chain advantage of China's smart cars and the broad market behind it,Lei Jun has the confidence to set a lofty goal,The future will ship more than 10 million cars per year,Become the top five in the industry。

However, Apple, which is limited by the innovator's dilemma, has no choice but to redefine the car, and Apple's car-making story, which is committed to disrupting the industry, is too ambitious, too ambitious, and thwarted by its overly ambitious and radical vision.

Faced with unattainable goals and high standards, the Apple Car went from being far away to being fruitless.

2. Absence of the main heart bone

The strategy is still vacillating

Therefore, we see that in the course of ten years of car building, Apple has fallen into a dilemma of constant attempts and changes, failures and repetitions, with routes swaying from side to side and frequent personnel changes.

Different from Huawei and Xiaomi, which have a firm line, in the past ten years, Apple's car-making project has changed four leaders, and the technical route has also repeatedly jumped between vehicles and autonomous driving technology. In the ever-changing electric vehicle industry, Apple has wasted a lot of valuable time and resources in the constant swing and overturning.

As a result, the outside world's perception of Apple's car manufacturing is more about executive changes, R&D setbacks, plan delays, layoffs, and project restructuring.

The excessively high ideals and realistic skinny sense made Apple and Cook also suspicious of this project. Even if it is also a project to reshape the image of an innovator, it is Vision Pro, not the car, that has become Apple's own son.

According to some Apple employees, the delay in bringing new cars to market is due to the lack of a leader who can clearly define and articulate the product.

Compared with the history and current situation of "opponents" such as Tesla, Huawei, and Xiaomi, building cars should be the top project.

Lei Jun and Yu Chengdong bind personal labels to car manufacturing to strengthen the perception of the market and car users. And Tesla has waded through countless pits, was once on the verge of bankruptcy, and finally survived and grew under the pull of Musk, a paranoid and even crazy person.

"Musk's Biography" mentioned that in order to build cars, Musk often works directly in the workshop, and the product design drawings have been changed many times.

And Cook is almost invisible in the car-building project. Several people involved in Apple's car-building project said that Cook rarely visited Titan's California office, that frequent strategic changes were exhausting to members, and that his reluctance to commit to mass production had also discouraged some Titan executives.

At the beginning of the Titan project, Apple's top management had disagreements about what kind of car to build. At that time, Steve Zadesky, the project leader, wanted Apple to develop a car with semi-autonomous driving capabilities, while Jonathan Ivy, Apple's design director at the time, who was also a core member of the car-making project, believed that Apple would completely overturn the product form of the car and create a fully self-driving car without a steering wheel.

In 2015, Zadeski left Apple's car-building project and passed the baton to Bob Mansfield, a retired former Apple executive who preferred to "develop software and support solutions." Under his leadership, the focus of the vehicle building project has been adjusted from the initial complete vehicle construction to the development of autonomous driving technology.

In 2017, Apple received a license to test self-driving cars in California. Since then, Apple has fallen into the trap of "demonstration software", that is, constantly developing autonomous driving software and demonstrating autonomous driving software, but there is no way to expand the functions and realize the implementation of products.

In 2018, Apple's car-making route swayed again. Former Apple's vice president of Mac hardware engineering, Doug Field, returns to Apple after five years at Tesla, once again making building cars a top priority.

However, due to the delay in the mass production of vehicles, Doug Field left in September 2021. Due to the over-diligence of leadership and strategy, and the ensuing layoffs, Titan became the target of ridicule from the rest of the company's business units. Several former employees said some managers took the initiative to warn employees to stay away from Titan.

After that, Kevin Lynch, the head of Apple Watch, took over. He has said he hopes the project will have a clearer and more urgent goal, including the launch of fully autonomous vehicles as early as 2025. At the end of 2022, Apple postponed the release of its first new car to 2026 and abandoned the L5 route for full self-driving in order to mass-produce as soon as possible.

But the situation is not getting better. In September 2023, Ming-Chi Kuo, a well-known Apple analyst, posted that Apple's car-making project has "disappeared". In January 2024, the latest plan discussed within Apple was to postpone the car launch until 2028.

"Either the delivery is finalized or the project is cancelled altogether. This is the directive given by Kevin Lynch and Cook after a series of meetings when the extension was announced again. However, just one month later, the decade-long, multi-billion-dollar project was terminated. After some tossing, the Apple car is back to square one.

Looking back at Apple's 10-year history of car manufacturing, it is not difficult to see that the company's executives are vacillating on key issues such as whether to lay out vehicle manufacturing or bet on autonomous driving technology, as well as what kind of car to build and how to build a car, which has largely led to Apple's car manufacturing project falling into a hesitation.

In stark contrast, while Apple is still struggling with "how to build a car", Tesla is making great progress around the world. Boosted by China's speed and the Chinese market, Tesla's sales have exploded and secured the top spot among the world's new automakers, with its share price increasing by 743.4% in a year, exceeding the combined market value of all automakers in the world.

Obviously, at this time, the overall situation of the global new energy vehicle industry has been decided. Apple, which will only be launched in 2028, will hardly surpass Tesla and become a pioneer in redefining automobiles.

3. A strong man breaks his wrist

Weigh the pros and cons and bet on the future

As Steve Jobs said, "Deciding what not to do is just as important as deciding what to do." Although it has spent a lot of sunk costs in building cars, the key node of success or failure, Apple chooses to give up building cars and all in AI.

Titan is very expensive, costing more than $1 billion a year, but this is still a piece of cake for Apple, after all, its annual R&D expenditure exceeds $22 billion, in fact, there is no need to cut the car team to do AI.

There is a more realistic consideration behind Apple's eventual shutdown of the car-making project, that is, "no money".

After all, it took 17 years for Musk's Tesla to become consistently profitable. Luca Maestri, Apple's chief financial officer and former GM European chief financial officer, admits that the low profit margins in the automotive industry are something that Apple can't easily overcome.

According to the financial report, in the fiscal year ending September 2023, Apple has a gross profit margin of 44%, an operating margin of 30%, and a net profit margin of 25%. Even among the world's three major luxury groups, only Hermès is more profitable.

The iPhone accounts for nearly 90% of the global mobile phone market with a global share of about 20%, the Mac has a global market share of nearly 10%, and the iPad has a global share of more than 40%, all of which have the only profit margin in the industry. This has Apple's current $162 billion in cash reserves and nearly $3 trillion in market capitalization, making it the largest capital in its search for the next growth curve.

According to Mark Gurman, a tech journalist who was the first to report on the end of car manufacturing, Apple decided to give up at the critical point of "to do or not to do". Among luxury car brands, Mercedes-Benz and BMW only have an operating profit margin of about 12%, and they and GM, Honda, Toyota, Tesla, Volkswagen, Hyundai, Renault, and BYD combined do not have more operating profits than Apple.

The reason why Xiaomi is still resolutely investing in building cars today is because the gross profit margin of Xiaomi smartphones is only 16.6%, and building cars is still a huge temptation for Xiaomi.

From a financial point of view, even if the car-making business is profitable, it will become a drag on Apple's overall profits.

Windsor, an independent analyst, believes that Apple's ultra-high market capitalization is underpinned by its strong profitability, and that mass production of cars could jeopardize its success. It is impossible for Apple to make a 40% profit in the automotive industry, but it can do so with mobile phones.

At the same time, as global EV sales growth slows, automakers are lowering prices, production targets and profit expectations for EVs in the face of sluggish demand and production bottlenecks.

According to UBS's forecast, the growth rate of electric vehicle sales in the United States will drop sharply to 11% this year, from 47% expected in 2023. For comparison, sales have grown at a CAGR of 65% over the past three years.

Therefore, it is also a wise choice for Apple to abandon the construction of cars.

And software capabilities are one of Apple's core competencies. As early as 2013, Apple launched the CarPlay in-vehicle intelligent system and entered the field of smart cars. CarPlay used to occupy an absolute leading position in the in-vehicle system market. According to Apple, in 2020, more than 80% of the new cars sold worldwide support CarPlay, so much so that Apple doesn't actually need to build a car to penetrate and transform every car on the road.

Under the craze of large models, from ChatGPT to Sora, the continued popularity of AI may also be one of the important factors in Apple's decision.

The internationally renowned consulting company Reese Category Innovation Strategy Consulting issued an article saying that AI will become the core of the future of smart cars, and Apple of All in AI will grasp the technological revolution of electric vehicles, and the difficulty of building cars has been the consensus of the industry. And Apple's willingness to choose a strong man to break his wrist this time is because compared with manufacturing hardware, relying on the subversive changes brought about by software technology is more strategic for Apple.

From vehicle manufacturing to AI, Apple not only meets investors' demands for financial reports and profitability, improves the possibility of business implementation, but also provides a starting point for in-depth cooperation with other car companies in the future.

"Since Cook is a conservative CEO and fully responsible to investors, the investors behind Apple and Tesla are actually two different types of people. Zhong Shi, an analyst in the automotive industry, told reporters, "The upper limit of the profit and loss ratio of making and selling cars can be predicted, after all, automobiles are a traditional industry." However, the size of the burgeoning AI market and the bright future are even more worth looking forward to, and Apple's abandonment of car manufacturing to focus on AI is most in line with the business logic of Apple and its investors. ”

The latest news is that, in addition to some departures, many of the current employees of the Apple Car team have been transferred to the AI department under the leadership of Senior Vice President John Giannandrea, who will focus on generative AI projects.

The reporter noted that Apple has been laying out AI for a long time, starting with the acquisition of Siri in 2010, Apple has acquired nearly 100 AI startups in more than ten years, including Shazam, primeSense, Turi, etc. It also launched its own large language model, Ajax, last year, while Apple spends more than $1 billion a year on generative AI projects.

Obviously, since it can't subvert the industry and break its past profit-harvesting model, giving up the car project and switching to AI may be Apple's most realistic choice at present.

As Li Xiang, CEO of Li Auto, said, artificial intelligence will become the top-level entrance to all devices, services, applications, and transactions, and it is Apple's battle. "Apple will add $2 trillion to its market value if it is a car and it is a big success, but the necessary condition for the success of the car is still artificial intelligence. The electrification of cars is the first half, and artificial intelligence is the final. ”

observe

The paradox of Apple's "abandonment" of the car

The shattered dream of the Apple car is arguably one of the biggest losses in the history of the tech giant. While Apple has canceled projects such as televisions before, few projects have lasted so long and cost so much money.

The reason for this is that Apple's repeated horizontal jumps in car-making ideas and technical routes have made it miss the best time node for the landing of vehicle products. In addition, the high cost of research and development, the high price tag for consumers, and the potential for a car project to be marginal or even unprofitable, combined with the hesitation and vacillation of Apple's top team, combined with the production challenges inherent in building a car.

Behind the entanglement and repetition, Apple is caught in the dilemma of an innovator, the image of an industry innovator maintains its ultra-high profit margins and strong market appeal, and to maintain this image, the long-dormant Apple urgently needs to launch a car that disrupts the industry.

Judging from the public information, Apple wants to build a mobile living room without a steering wheel and pedals and a car with full self-driving at the L5 level. But even today, ten years later, the L5 is still far away, and the end of the Apple car can be seen. Over the course of history, the list of frustrated people who have clicked on the wrong skill tree is destined to grow longer.

Since 2023, the price war in the automotive industry has changed the logic of capital investment, and the key points of industry investment have shifted from the dimensions of "compound growth rate, expected scale of the industry, and comprehensive influence of founders" to the three directions of "exit mechanism, profit time, and market share", and capital is no longer tolerant of the profit cycle of automobile companies. The growth rate of the new energy vehicle industry is slowing down and gradually becoming a red ocean, and the low profit margin of electric vehicles will directly affect Apple's high profit margin and the ultra-high market value behind it.

Technical and financial analysis is only one aspect, and there is a deeper reason that determines the fate of Apple's car may be that Apple no longer has Steve Jobs. The answer to Apple's redefinition of the car can only be given by people as imaginative and extremely paranoid as Steve Jobs and Musk.

The good news is that, as we said earlier, Apple's "abandonment" of the car is not necessarily a bad thing. Apple, which has given up building cars, can maintain high profit margins, high market capitalization and better embrace AI, which is the expectation of the capital market and the hope of Cook. After all, Apple has made a lot of money from the iPhone, and it doesn't need to invest all its wealth like Tesla to bet on an uncertain future of electric vehicles.

Of course, Apple could have learned from the experience of successful products in the past, like Huawei and Xiaomi, and gradually advanced instead of disrupting the industry in one step, but that would not be Apple, and Cook could have been paranoid about continuing until he made the ideal Apple Car, but that would not be Cook.