Rumors have been flying for years about whether Apple will create a car. Recently, this has gained more traction due to some key hires by Apple, and by boastful comments by an Apple employee, which is rather rare and unusual.
It is easy to dismiss the idea of an actual Apple car because the context is multi-faceted. My opinion is that if Apple wants to build a car, they certainly can. It will not be a question of ability at all. The reason is that the car business has changed dramatically in recent decades to lower the barriers to entry.
Car development has long ceased to be dominated by metal and mechanical aspects. It became an electronics and software problem years ago. A car has become an electronic device on wheels. Don’t believe me? Here is what Berthold Hellenthal of Audi’s electronic development department stated in May 2014 at the CDNLive users conference in Munich, Germany:
- 90% of innovation in vehicles today is based on electronics
- Every vehicle delivered to our customers contains about 6000 to 8000 semiconductors
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The amount of electronics and software in cars is increasing steadily. Now ask which company has mastered hardware and software development and integration? It is Apple. Moreover, they have the competence to take over the key portion of a tier 1 component supplier themselves in order to control their destiny more tightly, just as they have done with SoC development for the iPhone and the iPad. They use this as a key differentiator.
The second important aspect of the Apple car question is the transformation from internal combustion engines, to hybrids and eventually to all-electric cars.
Internal combustion engines have been refined and have become much more reliable in the last few decades. However, they are highly complex, contain lots of components, and are one of the most challenging areas of the automobile. You need fuel injection, a gas tank and pump, cooling, oil, exhaust system, catalytic converter, and on and on. It is an amazing sub-system of the car. Electric engines, however, are much less complicated. Consequently, this makes entry into the electric automobile manufacturing market much simpler.
Additionally, we have witnessed what Tesla Motors has accomplished since 2003. A Silicon Valley company where the CEO is a software guy who has done the un-doable – create a new electric car company from scratch with an attractive product. Tesla Motors has shown that this is not a pipe dream, and that the complexities of automobile development are not insurmountable.
Apple has also mastered supply chain management like few other companies in the electronics space have.
The last factor is product distribution. When Apple started to open its own retail stores for direct sales and distribution, and in of all places expensive mall spaces, everyone thought they had lost their corporate minds. The prevailing trend was just the opposite – everything moves online. And the few computer dealers with stores like CompUSA, Gateway, and others vanished quickly. But Apple’s approach has not only been successful, they are now the most profitable retailer per square foot of sales floor space in the world, and by a wide margin.
Direct sales also increases profitability and provides the ability to better control the sales process. You are not relying on the often not very informed sales staff of a traditional car dealer. You can directly and intimately show the customer where your product really shines. I have often been disappointed with how under-informed car sales personnel can be. In almost every car dealership showroom, even at high-end car dealers, the staff has no idea, or interest, in what they are actually selling. They lack both product passion and knowledge. Often, I had to inform the sales staff about the features of the cars they were selling.
So here is my conclusion: Apple has engineering power, they have more cash than necessary, we have the current trend towards electric cars, and they have supply chain mastery and direct distribution processes.
The stars are surely aligned. The question is now, does Apple want it? Is this a market they want to take on? Is this market ready for a disruption that can be sufficiently profitable for their standard business model.
By the time Apple could launch a car, we will be just before the cusp of the transition to autonomous vehicles. This means we will be in a period where the markets are changing radically. Autonomous vehicles will be a disruption by themselves. Hence, it could be a compelling point to enter the market.
The margins in the car industry are much lower than the ones Apple is used to. However, the same thing is true in computing and mobile. Apple has been able to create margins that others only dream of.
History tells us that Apple can defy common wisdom. Still, taking on car development and distribution still would be a huge leap, even for Apple.
Fan boys would love it and so would I. Not just to have the ability to drive an Apple car, but even more importantly to see how this changes the automobile market overall, how it makes it more competitive, and therefore improves products.
The continued increasing complexity of automobile development in the electronics area, with the ever-increasing demands on software and systems, is a significant challenge for both auto manufacturers, as well as their suppliers. The EDA industry in general, and Cadence in particular, play a key role in enabling the next generation of automotive innovations. I can’t wait to see the car of the future, be it by Apple, Google, or the established car manufacturers.
Keep driving and dreaming
Axel Scherer
Twitter: @axelscherer