Five reasons why Apple will succeed in making electric cars

The cash-rich California-based giant is designing an electric car as it looks for ways to get more of its products into more of our vehicles. With top innovators driving the project, it is well placed for a fast start.

The Apple logo shines inside of an Apple Store in New York. The company is said to be turning its attention to the motoring industry. Lucas Jackson / Reuters
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Apple may already have manoeuvred itself into position to evolve into a global car maker in many ways that other Silicon Valley companies have not matched.

Based in Cupertino, California, Apple has put a few hundred employees to work on a secretive project to develop an electric car, a person familiar with the matter has said. While the company often tests ideas that don’t get released, the work underscores Apple’s long-held desire to play a greater role in the car industry, which is ripe for more convergence with our digital lives.

“It makes a tonne of sense,” Gene Munster, an analyst with Piper Jaffray Cos, said last week. “If you would have said 10 years ago ‘Apple is going to be in the car business’ I think people would have said you are crazy – because it would have been crazy. Today it’s a much different company that’s able to tackle these massive addressable markets.”

Apple, with a market capitalisation that’s more than $700 billion, needs to continue growing sales in iPhones, its largest revenue generator, while also expanding into new markets, such as cars, if it’s to reach a $1 trillion valuation, Mr Munster said. He added that he did not think that Apple would bring out a car in the next five years.

Nonetheless, Apple boasts some advantages over other Silicon Valley companies with car ambitions. Tesla Motors, which delivers less than 10,000 vehicles a quarter, surprised investors last month when chief executive Elon Musk said the firm wouldn’t be profitable until 2020.

Apple’s strengths as a potential maker of cars include:

1. $178 billion

The car industry churns through cash at an astonishing pace. Apple, as it turns out, has a cash hoard of almost $180bn. As Mr Musk said last week, Apple is “just running out of ways to spend money”. He added: “They spend money like it’s water over there and they still can’t spend enough of it.”

While the old rule of thumb was that it cost about $1bn to develop a new car, those costs are now being spread over more vehicles as traditional car makers work to use vehicle platforms for more models, said Dave Sullivan, an car industry analyst with researchers AutoPacific. That would be one challenge for Apple, as would a lack of experience building cars, though Thilo Koslowski, vice president and car practice leader at Gartner analysts, said they could acquire those manufacturing skills.

“It’s well understood because it has been around for 100 years,” Mr Koslowski said of building cars. “What isn’t that well understood are the pieces that Apple would potentially bring to the table.”

2. The Ultimate Mobile Device

Apple has built its fortune on creating products that are compellingly designed and that integrate software in such a fashion that immerses users’ lives deeper into the Apple world, further hooking them for upgrades. And it already has car-suited technology – mapping software, for instance – ready to go.

“The car is one of the most important and critical pieces of the puzzle that you need to master if you want to interact with customers wherever they are,” Mr Koslowski said. “It’s pretty important to have a phone that’s connected, and can show you your calendar and do all kinds of other things, but now extending it to this other device that happens to have four wheels.”

3. Car Guys?

The car business seems simple to outsiders, tempting some to think they can do better than Detroit, which spent a generation sliding toward bankruptcy reorganisations before re-emerging to new profits.

But the modern car industry has a mixed record on how outsiders perform. For every Alan Mulally, who jumped from Boeing to oversee Ford’s renaissance, there’s a Bob Nardelli, the former General Electric executive and Home Depot chief executive, who was at the helm of Chrysler during its bankruptcy. Tesla has so far succeeded while Fisker Automotive, another high-profile electric car company, had its assets sold off in bankruptcy.

Apple, meanwhile, has a unique mix of executives with tech and auto experience. The company has long hired engineers from the car sector, often with experience in supply chain management, battery technology and user-interface experience.

Luca Maestri, Apple’s chief financial officer, spent 20 years at General Motors in areas of finance and operations. Eddy Cue, the influential senior vice president of internet software, is a car enthusiast and on the board of Ferrari. Steve Zadesky, vice president of iPhone product design, who is leading Apple’s car effort, spent time working at Ford in his career. Marc Newson, a well-regarded industrial designer who joined Apple’s secretive design team last year, worked on a high-profile concept car for Ford in 1999.

4. Retail Network

One of the strengths, and weaknesses, of traditional car makers has been their dealer networks. It’s hard to open up store fronts around the world fast enough to get the scale needed to sell cars. In the United States, there are added complexities such as state franchise laws that often prohibit manufacturers from selling cars directly to customers.

That’s an issue Tesla has sought to change. Rather than selling through franchised dealers, the Palo Alto, California-based car maker operates its own showrooms, which were created by a former Apple executive, and takes orders over the internet. The approach has angered franchise dealers and Tesla had confrontations with dealer groups last year in Georgia, Missouri, New Jersey, New York, Ohio and Pennsylvania before reaching compromises.

Apple, of course, already has a giant retail network through its hundreds of Apple stores worldwide, from Brazil to Sweden to Turkey.

5. Apple Does Global

The car business has a global complexity like few other industries, with regulatory, marketing and logistics issues that can trip up the capital-intense business on any given day.

Apple, which designs its products in California but depends upon contractors to assemble them, mostly in Asia, is used to managing an on-time supply chain around the world, something Google doesn’t do in its day-to-day internet search business, and handling the complexities of currency swings throughout global markets. Chief executive Tim Cook built his reputation at Apple for his ability to navigate those global operations.

“That would be a huge plus should they decide to manufacture cars,” said Tim Bajarin, president of technology firm Creative Strategies.

He said he remains sceptical about whether Apple wants to get into the actual business of selling cars, rather than just moving deeper into creating operating systems for car makers.

“Doing cars is not in Apple’s wheelhouse,” Mr Bajarin said. “It’s more likely they are trying to create a richer, more immersive electronics experience tied to iOS where not only the audio system but the information and possibly new levels of security through sensors and cameras would be part of what they would offer to other car makers.”

Apple could be creating concepts, or reference designs, to integrate technology to demonstrate to car makers, he said.

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