apple carcar

Apple Car: Investing in the Future of the Automotive Industry

Move over Tesla, Apple Inc. is exploring the development of a car – well at least the inside of one. The Wall Street Journal reports that the company has a team of hundreds working on the design of a battery powered minivan-like vehicle, code-named Titan.

The news has got people spreading rumours like a teenage girl.

Tim Cook, CEO of Apple, appointed Steve Zadesky, a former Ford engineer, to lead the project, giving him permission to create a 1000-person team. According to the WSJ, the team is researching metals and materials consistent with automobile manufacturing – lending credibility to the idea that Apple is building a car of its own.

Apple also hired Johann Jungwirth, former head of R&D at Mercedes-Benz, last September. Before Johann defected he was VP of Connected Car, User Interaction & Telematics at Mercedes.

It’s hard to say what’s going on with any certainty, but Jungwirth’s former title seems to hint at the bigger picture. It’s really hard to make a car, as Elon Musk and Tesla have found out. Apple also only has a team of hundreds…where Tesla employs 10,000 people. It’s clear that Apple has only just started in the auto industry.

Consider this: Apple has a market cap of $750 billion; Tesla has a market cap of $25 billion. Even if Apple were to build a Tesla-sized competitor that would only add 3% to their valuation; and who knows how many decades that would take? General Motors, which employs over 200,000 people and has a market cap of $60 billion, is worth less than 10% of Apple Inc.

Is Apple Making a Car?

So is Apple really betting on an Apple Car to create explosive start-up like growth in their massive company?

I think we’re missing what’s happening right now for seductive visions of what might happen.

It’s far more likely that Apple is creating an R&D division aimed at dominating the in-vehicle user experience. Our cars are on the cusp of enlisting in the global army of interconnected devices; it is the last “untapped frontier when it comes to mobility and connectivity”.

Last year, Apple introduced its Carplay system – allowing integration of Apple software into automobile dashboards. Siri is in your cars, you guys!

a2Source: CNBC.com

This is truly where Apple is able to compete, not in building an electric car. Although they certainly have the resources to build one if they so desired.

Mark Boyadis, an analyst at IHS Automotive, puts it well when he says “They want your eyes, your purchase intent and so many other things in the hour or two you are driving”.

About 600,000 vehicles were equipped with some form of ‘phone projection’ system (AKA a Carplay type of system) in 2014. That’s nothing when you consider that 88 million vehicles were sold in 2014. Boyadis estimates that by 2017, 40 million vehicles will come equipped with such systems, ballooning to 250 million by 2020. Apple will want to be in the majority of those 250 million cars.

What’s more likely? Is Apple building an electric car or is the hiring of the former VP of Connected Car at Mercedes Benz a signal of things to come?

We can’t really say for sure, but the furore and wild speculation occurring in the public sphere is reflective of a larger sentiment. Electric cars are on people’s minds.

Actually, there are three futuristic trends that are in play right now.

How far away are Driverless cars?

Driverless cars, electric cars and smartphone hailing; imagine all three converging into a crazy-wonderful future where all cars are eco-friendly, autonomous, and available at the push of a button.

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We’re further along than you think. On February 18th, The Telegraph published a video showing how a driverless car beat a race-car driver on the track at Thunderhill Raceway Park in California.

Fully autonomous cars available to the public are still many years away.  Economic and political reasons abound. For instance, the sensors used to convert a regular vehicle to a driverless vehicle cost about $75,000. You’re probably not going to disrupt an industry with those kinds of numbers.  A professor specializing in the field, Prof. Rajkumar, stated his belief that Google would be able to bring those costs down to about $10-15,000 per vehicle in 3 years. In the mean time we may have to make do with incremental advancements in driver-assisted technology, such as camera feeds or self-parking features.

Taking the Tesla Challenge

On the electric car front Toyota recently announced their first hydrogen fuel cell car, an obvious competitor to the Tesla Model S. This shows that big car companies are taking the Tesla challenge seriously. Both cars are priced similarly but the Toyota is estimated to have a cruising range of 465 miles to Tesla’s 265 and a refuelling time of just three minutes compared to one hour for a Tesla vehicle at one of their supercharger stations.

Widespread use of electric cars is also far away. Remember how 88 million vehicles were sold globally in 2014? Well, the total number of all the electric cars ever sold is less than 1 million. One reason we don’t use electric cars more ubiquitously is that they are expensive. They also don’t work the way we’re used to our cars working. The Tesla Model S costs about $100,000 and takes an hour to recharge (if you use a supercharger station). If you don’t use a supercharger station it can take up to 9 hours on a regular wall socket!

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The price of electric cars is going to go down. Tesla has plans to bring a $35,000 vehicle to market by 2017. Bringing down costs while also making sure the driving experience remains fairly unchanged (i.e. not having to wait 3-4 hours to recharge your electric car vs. filling up at the gas station in a few minutes) is what will bring about the electric car revolution. Competition from the giants (Volkswagen, Toyota, and GM) will help as well but without the perfect union of all those elements the electric car will remain a niche market.

We live in exciting times, and it may be that the expert’s predictions are extremely generous but it seems that market forces have put us on an unstoppable collision course with autonomous, electric vehicles. I can’t wait!

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