Tesla CEO Elon Musk said in a tweet that he had contacted Apple CEO Tim Cook to discuss potentially selling Tesla but Cook refused the meeting. The tweet was made after it was reported that Apple is planning to launch an autonomous car of its own with electric vehicle batter. So far, Apple has refused to comment on Musk’s tweet.
There has been sporadic reports that Apple was planning to launch its own automobile. These reports usually came from ex-employees or partners of Cupertino. Apple has refused to comment on those reports, too.
If Apple was to make its own cars, a large change in the automobile industry is inevitable. Apple, like Google, Microsoft and Facebook, has a solid platform.
But over 70% of it sales comes from selling devices. Sales from App Store and iTunes are relatively small. It is likely that this dynamic won’t be so much different for an Apple Car. Companies like Foxconn will likely contract produce cars designed by Apples. Foxconn recently announced that electric vehicles will be its future growth engine and is planning to design them.
Unlike traditional automobiles that run on fuel, electric vehicles run on battery and motors. The entry barrier to making powertrain components isn’t high. The problem is cost of these core components and securing a supply of them. As more countries are promoting electric vehicles as part of their policies to protect the environment, demand for batteries has risen but supply has been insufficient.
Apple is reportedly planning to use lithium iron phosphate battery for its cars. The battery will be also be in a mono cell design where there won’t be a separate cell or module. LFP batteries are made mostly by Chinese companies such as CATL and BYD. Like Tesla, Apple will likely design its own chip for autonomous driving and have them manufactured by foundry companies such as TSMC and Samsung. Apple has a close relationship with TSMC __ core components and manufacturing of autonomous vehicles will likely go to Taiwanese and Chinese companies.
It won’t be difficult for Apple to launch an autonomous driving car. It has collaborate with automobile companies before and platform and services will grow more important in the age of electric and self-driving cars. But automobile companies have lower margin compared to Apple, so it will likely use partners. According to Citigroup, the top ten car companies in the world had an average margin of 15%. Apple is known to have a margin of 38%.
Apple may use its brand to supply its self-driving system to automobile companies or enter the market through licensing, a person familiar with the matter said. There is the case of Apple TV where the company continued to update the product but their impact was minimal, they said, so Apple will likely enter the market when it has a differentiated confidence in the area. In this case, self-driving technology will be crucial. Tesla currently sells its self-driving system as an option. It costs US$10,000.
Apple has secured new revenue streams from its Fitness Plus and Apple Pay services. Autonomous driving system has a potential to be one in the future. Apple has dominance in smartphones, tablets and wearables, so there is synergy there. For example, the iPhone can be used for the autonomous driving system.
Setting the price of such services relatively cost-competitively can be successful, another person familiar with the matter said. Automobile companies have yet to succeed from their own platform ans services, so their potential partnership with Apple can be a boost for them as well.