Apple Auto – Silly season

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The car makers can still win the battle for the digital car.

• The seasonal news vacuum has left space for speculation as to whether Apple will manufacture a car to surface once again.
• This time it has been driven by the news that a senior engineer from Tesla has jumped ship to join Apple.
• This follows a number of other recent hires from the automotive industry for Project Titan.
• This has triggered speculation that Apple is working on building a car but I still believe that this makes no sense and that Apple is really only looking at producing a head unit or infotainment system.
• There are two reasons for this.
  • First. The engineers that Apple has hired are mostly those that specialise in autonomous driving, advanced R&D and quality control.
  • These functions and AI that drives them is very likely to end up sitting in the infotainment unit rather than anywhere else in the auto.
  • Second. Apple typically makes around 40% gross margins on the hardware that it sells and to start making cars would probably have a devastating effect on its gross margins.
  • This is because the auto industry is just not that profitable and in many cases car companies make far more money on the financing surrounding a car purchase than from the vehicle itself.
  • Consequently, I think that it will prove impossible for Apple to make 40% gross margins on engines, brake pads and wheels.
• However, making an infotainment unit comes with a big risk.
• The next generation of infotainment going into a car will require full integration into the car’s systems so that advanced monitoring and even autonomous driving will be possible.
• This will require the co-operation of the automakers as all of the critical interfaces are completely proprietary.
• Without their co-operation, any infotainment unit produced by Apple will be little more than an iPad glued to a dashboard.
• This is where the automakers have to tread very carefully.
• They must allow users to bring the Digital Life services that they know and love on their smartphones into the car with them in an easy to fun use way but at the same time they must maintain control over the infotainment unit.
• If they leave a hole in the dashboard to plug an Apple unit into, then they will have lost what will become one of the biggest differentiators going forward.
• In this instance they will become more like the long suffering Android handset makers.
• Furthermore, the automakers must also show solidarity in keeping Apple out of their systems because if one of them lets Apple in and the users love it, then the game will very likely already have been lost.
• One only has to look at how Apple has decimated the brands of the US mobile operators for evidence of that.
• I suspect that Apple is still quite far away from having something ready to launch but the automakers are going to have to move quickly and in an area that is way outside of their comfort zone: software.
• It is time they study history so that its repetition can be avoided.