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An Apple automobile would put strain on Tesla and different automakers

Exterior view of the Apple Store on Fifth Avenue on August 19, 2020 in New York City.

VIEW press | Corbis News | Getty Images

Tesla has been dubbed the “Apple of the Automotive Industry” because of the amount of technology in its vehicles.

But what does that mean for Tesla and other automakers as Apple is negotiating an electric vehicle with South Korean automaker Hyundai-Kia?

Simply put, it’s complicated. Apple is known for its secrecy and there is little information available about what its business model would be for what is known as an Apple Car. Overall, the tech giant’s entry into new segments – phones, watches, music, streaming, etc. – means there is significant pressure for older companies to adapt their customer interface and products. A car would probably not be any different.

“There’s no question that Apple, if it gets into the auto industry at all, will put pressure on the rest of the auto industry to improve the customer experience,” said Michael Ramsey, vice president, automotive and intelligent mobility analyst at Gartner .

Ramsey said Apple’s ecosystem could be “seamlessly integrated into an Apple-specific car” that no company other than Google could compete with.

“It means more competition. That’s the bottom line. It’s more competition,” said Stephanie Brinley, principal automotive analyst at IHS Markit. “And it’s a very well-funded competition too, if you choose to.”

As CNBC reported earlier this week, people familiar with the Apple and Hyundai-Kia talks said the electric vehicle is expected to go into production at a Kia plant in Georgia in 2024, despite saying the eventual roll-out will be pushed back could. They said there was still no agreement between the two companies. In addition, they emphasized that Apple could ultimately decide to work with another automaker separately or in addition to working with Hyundai-Kia.

Apple is already represented in millions of vehicles through partnerships with automakers for its Apple CarPlay, software that essentially mirrors much of the iPhone display on a vehicle’s infotainment screen.

But producing and selling a car even with a partner like Hyundai-Kia is not as easy as entering other consumer segments. The automotive industry is a capital-intensive industry with long lead times, stricter safety regulations, and far lower margins than consumer electronics.

“It won’t be easy for Apple to break into this area,” said Brinley. “It’s a very complex industry and just because you are Apple doesn’t make it easy.”

Bloomberg reported on Friday that talks between Hyundai-Kia had been “interrupted”. But an Apple car would likely have the same impact on the auto industry regardless of which company makes the vehicle.

Autonomous vehicles

In order to achieve margins close to what the tech giant is used to with its consumer electronics, it is expected that its “first vehicle” will be autonomous, also known as self-driving. That is, it is not designed to be controlled by a human, but by a computer that uses a range of sensors and radar to “see” its surroundings.

Autonomous vehicles have been promised for years, but aside from a fleet of retrofitted vehicles with such technologies operated by Alphabet’s Waymo in Arizona, others like General Motors, Uber, and Lyft have missed targets or given up entirely due to difficulty.

An Apple car – known as Project Titan – has been on and off for years. In 2017, Apple received approval to test autonomous vehicles in California. The company used pre-built vehicles, including Lexus crossovers, and added Apple technology.

While driving seems a bit easy, people – pedestrians, bikers, other drivers – and things around us like animals can be unpredictable, making it extremely difficult to program a vehicle to respond safely in all situations.

“When you look at the driving task, the most basic driving tasks like going straight between two lines or going around a corner, it’s not that difficult,” said Sam Abuelsamid, principal research analyst at Navigant. “That’s not the part that gets people into trouble. It’s when you start getting into all of the unusual scenarios, the edge cases.”

According to Abuelsamid, Apple has the money and the potential expertise to develop such a system, but it remains an extremely difficult task. He believes that an Apple car is not initially intended for consumers, but rather for services like delivery and hailing in select markets – areas targeted by many current companies developing self-driving vehicles.

“This is not going to be a mainstream product, but rather a premium product that is typical of Apple, because the only thing about Apple, no matter what products they make, is that they only deal with things that are significant Can play a role. ” Profit margin, “he said.” The auto industry is a notoriously low margin business.

Trillion dollar market potential

But that’s the traditional automotive industry. The potential for autonomous vehicles for deliveries and ridesharing is enormous. It takes the most expensive part of such businesses – the physical driver – out of the equation and enables higher profits. Cruise, a majority-owned GM subsidiary for autonomous vehicles, valued the autonomous vehicle industry at $ 8 trillion last year.

Morgan Stanley analyst Katy Huberty put the global auto and mobility market even higher at $ 10 trillion.

“Smartphones are a total addressable market (TAM) valued at $ 500 billion annually. Apple has about a third of that market. The mobility market is $ 10 trillion. Apple would only have a 2% share. in this market need to reach the size of its iPhone business, “wrote Huberty in a January research report.

It is currently unclear what exact plans Apple would have other than that Hyundai-Kia may produce a vehicle. The business model has historically sold products to consumers, but it has evolved more into services so as to be less reliant on such sales.

CNBC asked Apple for a comment. Hyundai-Kia declined to comment.

“When I look at Apple and the potential for building a car, I’ve always been a huge fan,” said Gartner’s Ramsey. “I love the idea of ​​it. It makes sense to me when a car becomes a consumer electronics device, just like our really advanced smartphones and other devices that run on batteries and updated by software Apple should be in this business.”

– CNBC’s Phil LeBeau contributed to this report.

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