As big media rides on the ‘Apple researching an electric vehicle’ bandwagon, one analyst lays out why the Cupertino firm could ultimately become a force to be reckoned with in autonomous cars.
Commenting on an influx of stories related to Apple’s rumored Project Titan, Morgan Stanley analyst Katy Huberty explains (via Forbes) why the world’s richest, most valuable company taking on the world’s most disruptable business makes a lot of sense.
While noting that Project Titan may not be a near-term event, she underscored that she wouldn’t be dismissive of Apple’s automotive ambitions.
“The auto industry also needs Apple, we argue, because after over 100 years of status quo, the industry needs a change agent,” she said. The automotive total addressable market is $10 trillion of installed base, with an annual new vehicle revenues of roughly $1.6 trillion.
“This dwarfs smartphones at $400 billion and PCs at $266 billion of annual revenue,” Huberty observed. “If Apple were to corner just 25 percent of the value of the car, it would be equivalent to the entire smartphone industry today.”
U.S. drivers spending about 25 percent of their free time in the car prompted the analyst to opine that “Apple will want to target this captive audience – especially if we go autonomous.”
”We note that Apple prefers to develop and design its products in-house, and to outsource the actual production and assembly process,” the analyst continued. “This could be enabled by cars going autonomous – we estimate over 60 percent of the value of the autonomous car will come from software vs. ten percent today,” she wrote.
Indeed, once you go past the engine and car mechanics, it’s all about software. Tesla’s vehicles, for example, receive fresh software updates on a regular basis.
Car firmware updates improve Tesla’s performance and energy efficiency — again, without making any physical change to the car’s design or engine other than refreshing its software.
Among other things, Apple is a software company so if they’re in fact working on an electric car project, software will be key. That’s, of course, assuming that Project Titan is an autonomous car.
It’s time for “some very powerful all-new players who don’t even make cars today,” Huberty wrote, calling it “a push toward Silicon Valley motors.”
By the way, famous industrial designer and Jony Ive’s friend, Marc Newson, who was recently hired by Apple and is now working with Ive, designed a 1999 concept car for Ford, seen below, as well as a bunch of other transportation vehicles.
Unlike The Financial Times and The Wall Street Journal which only mentioned an electric Apple vehicle, Reuters has upped the ante by making specific claims of the project being an autonomous self-driving car.
Reuters said the company is “exploring how to make an entire vehicle” rather than just designing automotive software akin to CarPlay. By the way, Mercedes-Benz Chairman Dieter Zetsche recently said he wasn’t concerned about Apple possibly building a car.
“If there were a rumour that Mercedes or Daimler planned to start building smartphones then they (Apple) would not be sleepless at night. And the same applies to me,” he told Australian website Motoring.com.au.
“And this is full of respect for Apple,” he added. “That is what I am saying.” While acknowledging he wasn’t privy to Apple’s product strategy, he struggled to find any rationale for Apple to build a car.
“Why Apple with this kind of margin would now go into this business,” he pondered. “I think investors will hate it because they don’t like conglomerates, they want focussed management on what they understand.”
He’s right about that, car making is a low-margin, heavy-manufacturing business. Not only cars cost a fortune to research and develop, the whole segment enjoys about ten percent return on investment (ROI) compared to Apple’s 25 percent ROI.
It should be noted that Daimler, owner of Mercedes-Benz cars, has lost its North American President and CEO of Research & Development, Johann Jungwirth, to Apple.
Jungwirth is now reportedly charged with assembling a thousand-people team for Project Titan, which is being led by product design Vice President and former Ford executive Steve Zadesky.
More on Apple’s automotive-related hires is available here.
Zetsche’s comment echoes remarks by former GM CEO Dan Akerson, who cautioned Apple to think twice before getting into hard-core manufacturing.
“We take steel, raw steel, and turn it into car,” he said. “They have no idea what they’re getting into if they get into that.”
“Look at the margins of an iPhone versus a car. I’d rather have the margins associated with the phone,” Akerson reasoned.
I don’t know about you, but both Zetsche’s and Ackerson’s somewhat dismissive remarks remind me of another famous quote made by Palm CEO Ed Colligan.
Eagle-eyed readers would recall Colligan’s rather shortsighted comment back in 2006, before the iPhone was announced. “We’ve learned and struggled for a few years here figuring out how to make a decent phone,” he said, adding that “PC guys are not going to just figure this out. They’re not going to just walk in.”