If Apple can make the right hardware, what types of services can it build and deliver around Apple Car?
Morgan Stanley analyst Katy Huberty spoke about the accelerated pace of disruption in the auto industry and the opportunity for the Apple Car this week, sharing many of those perspectives in a post-customer note.
What happens in car production?
Apple has been working on the ultimate garage product for years. I’ve never seen it, but apparently the company has thousands of people working on it, has invested hundreds of millions of dollars in effort and is expected to be a kind of vehicle for years to come.
«In any new product category, there are other technology companies that are happy to bring a product to market that may not be in prime time or a product that is not perceived as perfect,» says Huberty. «Apple is taking the other side. The strategy is to do less, but do it very well and increase your chances of success. «
It is still possible that Apple will abandon such plans because the challenges it is trying to solve are evolving rapidly. At the same time, the automotive industry has begun a profound and inevitable transformation in which its entire raison d’être must change. Before considering Apple’s approach, it’s important to consider the overall picture of vehicle production.
Everything is interrupted, for example:
- Climate change means that the industry has no choice but to abandon fossil fuels. A switch to electronic vehicles in Beijing, for example, would make the city cool to 2 degrees Fahrenheit, although the overall benefits are still a bit confusing.
- Replacing all existing vehicles is not an option, due to the need to preserve raw materials and the pollution generated in their manufacture.
- The cost of vehicle maintenance will increase. Some existing suppliers may not make the transition, and we are also looking for accelerated regulatory changes.
- The development of autonomous vehicles is difficult. And as cars become autonomous, what we do inside them will change as well.
It is increasingly understood that all these changes will mean an initial increase in electric vehicles (EV), followed by the emergence of truly autonomous vehicles (AV). This transition is likely to be accompanied by an increase in public transport and micromobility solutions, such as electronic scooters, autonomous transit systems, bicycles, etc.
Urban planners in some countries are trying to encourage the use of personal transport in this way, making short car journeys more expensive and less efficient.
What this means is that many will find fewer reasons to need a car, the number of cars sold will decrease and the reasons for owning a vehicle will change. Car manufacturers know this, which is why many are investing in the development of electric vehicles, charging technologies and ride-sharing schemes.
Before entering this space, Apple should try to answer the same questions that all existing manufacturers are trying to solve:
- How big will the car market be?
- What will be?
- What will become of the cars?
- What do we expect from them?
- And what about vehicle ownership?
As the notion of public transportation expands to include the exchange of cars and travel, what will the state-of-the-art market demand?
Bernstein’s analysts predict that Apple could sell 1.5 million vehicles by 2030, but are sales figures adequate for the post-gas car? Is it appropriate to try to sell these vehicles in quantities similar to an iPhone?
Apple’s answer will be services
«Apple succeeds when integrated vertically,» says Huberty. «They want to participate in the design, the way the software communicates with the hardware, what are the right components and technologies to use.» Apple will focus as much on the other elements – the construction, the design, the look of the vehicle, the operation of the components and software together – and the services. «
Apple also tends to build ecosystems that support its services. «You have to sell enough cars to start thinking about what the long-term service opportunity will look like,» says Huberty.
The first part of Apple’s journey, then, will be to take out its vehicles using design and consumer confidence, with the service component and the inevitable development platform ready to go.
You can see this model on iPod, iTunes, iPhone and the evolution of the App Store, which has turned iPhones into everything you need. «Apple has leveraged the innovative power of hundreds of thousands of developers with whom it could share the economy because of everything Apple has brought to market around the credibility and size of its platform,» Huberty said.
What is the business plan?
It seems safe to assume that Apple will try to build a remarkable core product that is complemented by a range of cost-effective services and accessories. So what can Apple build beyond that and where can you set margins?
Let’s start with a touch of luxury. Anyone who has ever seen the Apple Watch strap display in the store will recognize that the company cares about luxury.
This means that part of Apple’s proposal will probably consist of various improvements to custom-built vehicles and the replacement market: seats and interiors, battery size, wheel trim and more. There are many vehicle manufacturers that generate a lot of revenue with accessories and upgrades. (Because Apple is Apple, we have to hope that the company doesn’t force owners to buy a trunk full of charging station conversion cables.)
Beyond the physical things, what services might be needed for the cars that will eventually become autonomous?
Here are six ideas:
- I imagine that part of Apple’s plan can emulate the radio economy, so location-based ads, offers, and map-related technologies could be around an in-car entertainment service. This also explains Apple’s own radio stations, limited support for stations outside its built-in garden, and current investment in podcasts.
- The Apple Car Care service will be popular. I imagine that this will provide subsidized repair, maintenance and emergency services throughout the life of the vehicle for an annual fee.
- Owners who choose to enroll their vehicles in the Apple Car Share program to earn some money when their car is stationary will give Apple between 15% and 30% of the profit.
- Major software updates may be available for free, with additional features available as paid downloads.
- The most verified app store can also be located there. (I do not anticipate that road traffic authorities will allow side-loading of applications in cars in the absence of strict security controls.)
- Apple’s decision to create a closed-loop production system and its commitment to zero emissions means that any vehicle you put on the road will also make you make additional local direct and indirect investments in clean energy supply.
But before you can make money from any of these services, Apple needs to make the right car, and this can turn into an incremental journey.
«I wouldn’t be surprised if Apple came to the market with an electric vehicle, right? A car that looks like the cars on the market today with a steering wheel. They did this with the iPhone, where in the first iPhone there was no app store, «said Huberty.
«How are they different in terms of hardware?»
Apple has been working on this for some time, and Apple already holds patents for hazard detection, AR windshields, suspension and braking systems, climate control and more.