If any big company can make a sudden and successful leap into the business of building cars, Apple would have to be considered the most likely candidate.
The company, with $178 billion in cash reserves, has enough mad money to buy the entire US auto industry. It’s now twice the size of ExxonMobil, and experts say that it could start rolling out production cars as soon as 2020 if it wants.
But despite much breathless news about how Apple will transform the “stodgy” US auto industry, it won’t be easy. The auto industry has long design cycles, tiny profit margins, and an unfamiliar supply chain. It’s also heavily regulated and has a complex service culture that can’t be easily changed, even with clever incorporation of Genius Bars.
In the past, other big companies have made the error of assuming their “right stuff” could be transferred to the auto industry. “I consulted with Samsung a while back when they wanted to start building production cars,” David Cole, chairman emeritus for the Center for Automotive Research, told Design News. “The gist of my remarks was, ‘You’re a rich company. You could get un-rich very quickly if you get into the auto industry.’” Samsung eventually dropped its automotive plan, but not before incurring significant losses, Cole said.
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The truth is, there’s a broad spectrum of possible scenarios that would allow Apple to join the auto industry, without making a conspicuous dent in its wealth. Those possibilities start at the simple end, with the expansion of its CarPlay standard, and run all the way to the creation of a networked, entertainment-based interior for future autonomous vehicles, which would seem to be a natural for Apple. And, of course, there’s also the possibility of it entering into the business of designing, producing, and selling cars.
Recent reports about Apple’s poaching of battery experts from A123 Systems lend credence to the possibility that it is building an electric car. Still, some industry observers find it hard to swallow, largely because the goal of creating an EV battery has become a quagmire for many who’ve attempted it. “This is being way overhyped,” Dean Frankel, research associate for Lux Research, told us. “Despite all the cash they have, we believe it’s unlikely that they’re going to build a production car.”
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Cole says Apple’s desire to enter the auto business may be motivated by gradual changes in the electronics industry. With competition from China rising, and profit margins on its latest devices getting slimmer, Apple executives are in search of a product that borders on being a necessity for consumers. “We’re getting to the point where the relative value, from the i5 to the i6, is getting smaller,” Cole told us. “Pretty soon, that business model will run out of gas.”
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Before they reach that point of diminished returns, they have to start looking for the next big thing, he said. “It’s almost a curse of wealth. They can’t do little things. You’re never going to see them getting into stoves and refrigerators.”
For now, however, media and investors are left to guess what that next big thing is. “Is Apple able to do something that none of us can imagine?” asks Frankel of Lux. “Absolutely. But that doesn’t mean it’s a slam dunk.”
Senior technical editor Chuck Murray has been writing about technology for 31 years. He joined Design News in 1987, and has covered electronics, automation, fluid power, and autos.