Will Apple revolutionize mobility?

The rumour is deafening. Despite Apple’s notorious shroud of secrecy, journalists, automotive manufacturers and financial specialists are speculating on what increasingly appears to be Apple’s foray into the world of mobility.

What we have read and heard?

A few weeks ago, the curiosity of journalists, bloggers and analysts was peaked by “mysterious” Apple vans that were spotted in San Francisco and New York.

Then, more news surfaced about Apple being in talks with automotive suppliers and that the organization is working on an electric self-driving vehicle.

Apparently, Apple has been on a hiring spree and Steve Zadesky, a 16-year Apple veteran who was instrumental in the development of the original iPod and iPhone, is leading Apple’s automotive research lab, Project Titan, located in Silicon Valley outside the company’s Cupertino campus.  According to Business Insider, Zadesky “has been given permission to assemble an 1,000 person team to work on Apple’s car”.  Moreover, we learn that Zadesky “has been making trips to Austria” in relation to the project. Several writers have connected these visits with Magna Steyr, a century-old but little-known Austrian brand-independent engineering and manufacturing partner for OEMs, which has produced more than a million vehicles for BMW – including the BMW X3, MINI Countryman and MINI Paceman – and also produces the Mercedes G-Class at its plant in Graz”.

And, just in case there was still doubt in the minds of some, the company has officially expanded its corporate description in several countries and Apple is now an official manufacturer of: “Apparatus for locomotion by land, air or water; electronic hardware components for motor vehicles, rail cars and locomotives, ships and aircraft; Anti-theft devices; Theft alarms for vehicles; Bicycles; Golf carts; Wheelchairs; Air pumps; Motorcycles; Aftermarket parts (after-market parts) and accessories for the aforesaid goods”.

Will it be a car?

Apple’s hiring of battery experts has led many to believe that Apple is developing an electric vehicle. A Financial Times article stated that Tim Cook   “has  made  it  clear  that  the automotive industry is an area in which he feels Apple can make a greater impact”. According to this same article, at a recent Goldman Sachs technology conference, Cook said “CarPlay was one of three new technology platforms Apple launched last year that are key to [Apple’s] future, alongside HealthKit and HomeKit”.

With CarPlay, Apple is already involved in the automotive space but the recent attention paid by the heads of some of the world’s leading automotive manufacturing companies at the recent Geneva auto show, would lead us to believe that Project Titan is about more than infotainment.

Given that driverless is where Silicon Valley and most auto manufacturers are headed, it would be safe to assume that Apple also sees the writing on the mobility wall. A source familiar with the matter told Reuters that Apple is “studying the potential for a self-driving” vehicle.

But is Apple designing a driverless electric vehicle to sell to the masses? We think not. Here’s why:

  • Traditional auto manufacturing generates significantly slimmer margins than what Apple and its shareholders are used to (Apple’s gross margin for the fiscal year ending September 2014 was 40%). Even if the driverless electric vehicle is priced at a premium, it may prove difficult to achieve the same level of profitability as Apple has experienced with its current product line. Think Tesla.
  • The success and rapid adoption of ride sharing and car sharing are demonstrating that urbanites thirst for a new mobility offering that allows them to avoid car ownership (remember, personal vehicle utilization is only 4%). And, as urbanization continues to grow, so will this trend.
  • iPhone sales generate the lion’s share of Apple’s profit. The large majority of the iPhones in use today have been placed in the hands of consumers through contracts with telecommunica-tions providers that allow them to access the high-margin product through a term contract with monthly payments that bundle telecom services and the product. That’s a model that has made Apple billions!
  • Now, imagine gaining access to mobility on demand, Apple style, where an Apple electric driverless vehicle picks you up when you need one and delivers you to your destination.  A term contract provides membership to the service as well as a maximum number of km of travel in an Apple mobile environment, whether that be solo, in an Apple pool with a couple of other users or in a larger bus-like vehicle. Free WiFi within a user environment designed by Jony Ive, which means that it would be seamless even for a five-year old. You plug in as soon as you get into the vehicle that the creative geniuses at Apple have designed and you work, relax or simply enjoy the carelessness of getting to where you want to go without any of the hassles associated with car ownership.Apple-on-demand

While some will be able to afford to own such Apple-mobiles, the large majority will use them as a service, paying a monthly fee that will bundle all their transportation needs and possibly more …much like paying a monthly fee to gain access to the iPhone and the telecom services that accompany it.

Can / Should Apple do it?

Apple is the world’s most valuable company. With a market capitalization of $750 billion, Apple is worth more than Daimler, Volkswagen, Renault, Peugeot, Fiat Chrysler, Ford and General Motors put together. Despite its success, the company needs to continue to generate profits and shareholder value, potentially branching out to new industries. The transportation industry is ripe for change …change that Apple can benefit from.

Consider the following:

  • The company is reported to have $178 billion in cash – an amount that would allow it to establish itself in the new mobility industry.  Apple is already attracting top experts in the field with $250,000 signing bonuses and significant compensation increases.
  • Tesla has certainly proven that a newcomer to this high-barrier-to-entry industry can create superior vehicles that leave most salivating.
  • With CarPlay, Apple is already in the automotive space. So, in the short term, the company may continue to improve its CarPlay offering and develop infotainment solutions. Infotainment can spread to other areas within the vehicle: Human Machine Interface (HMI), ergonomics and controls, etc. Leave it to Apple to make a user experience feel seamless and easy.Apple_car-play
  • As electronics and code become an increasingly important part of the vehicle, particularly with fully driverless technology (it is estimated that software will represent over 60% of the value of the driverless vehicle), Apple’s strength in designing electronics that provide a new and unique user experience would provide the company with a strong competitive advantage. As Morgan Stanley’s analysts explain, “Apple has the brand and the design talent to take on the best in the traditional auto industry and it can rely on the existing automotive supply chain for non-critical components”.

If we are to believe what has been discussed over the last few weeks, by 2020, we should see the fruits of Apple’s labours.

Hold on to your seats because Apple will be disrupting mobility.

 

Photo : Andrey Bayda / Shutterstock.com

 

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