Apple took a really long time to realize quite how terrible the car industry is to be in.
After 10 years of rumors, Apple has pulled the plug on its Electric Car project , which at times directly employed around 5,000 people. I’ve read a lot about it lately and nothing written was especially insightful, so I thought I’d have a go at adding some depth and new angles and some provocations to the matter.
Having spent the last 6 months deep in Consulting work in Auto, there are so many fascinating dynamics to play, huge amounts of change and uncertainty and some wild times ahead. So sit back and enjoy a brief overview on the state of the industry.
1) The size of the market
In some ways making a car made sense for Apple. When you’ve a market capitalization of nearly $3,000bn you need to be on the look out for growth to justify it, and while it’s nice to dominate the $500bn smartphone market, taking a chunk of the $4,300bn global auto market is very exciting , especially compared with the benefit of entering the the $30bn VR and AR headset industry.
2020-2022 also saw the car industry flourish and some OEM profit margins sweep above 20%. For a while it’s been easy to forget that long term, the car making business isn’t a great one to be in. You spend billions on factories, billions on workers, billons on advertising, billions on R&D, billions on dealers, billions on financing, and in good year, you miraculously eek out a 4-5% profit and everyone around you gets rich off you. There isn’t an auto CEO out there that wouldn't swap to making phones and software, if cars were not so damn fun.
But Apple needs a big new thing, so the decision was hard.
The hardest question was always what is the unique value or expertise that a premium branded software and consumer electronics company could bring, to what from afar, seems like a very different sector.
2) Full autonomy.
Given Apple’s software prowess, and skills with sensors, miniaturization and processor development, autonomy seemed like a potentially winning bet.
But we should be aware autonomous vehicles follow the uncanny valley distribution.
A car that can self drive anywhere ( ADAS level 5 - see image below) completely changes the entire dynamics of the industry.
These are cars that allow people to live in different places because your commute becomes productive time or rest.
Cars that you don't need to own because you can summon them on command.
Cars that can look like living rooms.
Cars that don't need to be designed for all of the most common uses that owners have, but can be optimized around specific uses.
These are cars that change the built environment because parking spaces don’t need to exist.
These are cars that blur the lines between public and private transport.
A car at the end other end of the spectrum, like ADAS level 2, with perhaps, adaptive cruise control, parking sensors and collision warnings, represents almost everything that most modern drivers need/want.They allow people to save time and energy driving and crash less often and at slower speeds
But adding more technology beyond this basic car, adds surprisingly little.
My Lucid is able to stay in lane on highways, and avoid other cars and change speed, so long as I hold the wheel. This is far more tiring than just relying on myself because I have to check how I'm driving and check how the machine is driving.
A car that can self drive on 98% of roads still needs to be entirely designed to cope with the 2% of roads remaining, the steering wheel is still there. The middle area of self driving cars means fewer, but far more easily preventable fatalities. It means people drink drive when
they shouldn’t. ADAS level 3 and 4 is almost the worst of both worlds.
We do not seem close to ADAS 5, for 30 years self driving cars have been 10 years away. Fully autonomous vehicles remain a great example of Zeno paradox, where the more we know the more we realize we need to know and something 99.9% perfect 99.9% of the time, is less helpful that something that never works.
I think when Apple realized how far off self driving car remain, their enthusiasm to enter, the space was diminished. The whole point was having the canvas to rethink everything around users and from scratch.
( NOTE: With Self driving cars the question is never “when are they coming” but where are they coming. Which geographies, which markets, which conditions, which types of vehicles. It’s far more likely to be mining equipment or airport parking shuttles where these vehicles come first, and Cornish country lanes last.
3) Battery Electric Vehicles (BEVs)
It's fascinating quite how many things change when the powertrain changes.
It's not just that cars become less mechanically complex. It's the all of the problems change and there are also a huge number of second and third order impacts that are surprising. BEVs have impacts on how cities deal with potholes, with how hotels spend Capex, with taxation, insurance, sales process, government policies, brake and tire wear, and so on.
The core change is that car making shifts from complex mechanical manufacturing to something more akin to consumer electronics assembly. BEV’s designed from scratch are all constructed on a Skateboard type chassis, where much of the complex work of car making is standardized.
It’s just possible to think of some modern car companies as makers of interiors and body kits, more than traditional car companies.
It is unquestionably the case that Apple’s entry to the car market was made possible by the growth of the BEV market, it changed all the core competencies required, the issue remains that nobody can have confidence in the continued growth of the EV market.
Are EV’s the future ?
Spending 6 months researching the question, all I know is that making remotely precise confident predictions about where EV’s top out is impossible.
The condensed bull case for adoption is that improvements in battery technology continue, costs of batteries plummet, charging networks proliferate, price parity hits soon, and Governments continue to support EV’s. At a tipping point, social norms tip, and driving ICE cars becomes as unacceptable as smoking.
One can easily envisage advanced European markets having EV’s make up 75% of new cars sales by 2028.
But that doesn’t mean it’s likely. The bear case is real too.
Nobody talks about this, but so far almost all EV’s are sold to the lowest hanging fruit; wealthy, urban, multi-car family types or fleet owners. Nobody that “normal” is buying an EV, they may in some cases be sold them.
How quickly the market can move on from rich liberal types to more typical demographic is unknowable, but unlikely to be fast.
For example, I simply fail to see how BEV vehicles will make sense in most of the US. EV’s feel smart in cities, but highway driving feels stupid, and given the large distances involved, the propensity to buy larger, higher, louder cars and the emotional way most people buy things that are linked to identity, I just can’t envisage EV’s spreading out beyond Elite metros, especially when Trump will certainly reduce government EV subsidies.
We’d be smart to think of EV distribution less of in terms of nations and more in terms of metros. I can see EV dominating in Manila, Rome, Florianópolis, Shanghai, the Côte d'Azur, Dubai, or even Mumbai, but never in Palawan, Sicily, Mato Grosso, Iowa, or Patagonia.
Change seems certain until something unforeseen happens. For example all it would take for the entire global EV market to suddenly change tack would be a EV fire in a large parking garage under a metal framed skyscraper. It’s unlikely, but it’s not impossible.
Net net, and as an EV lover, I see it as unlikely BEV’s will make up more than 30% of vehicle sales in the US by 2030, I think Europe may top out at 60% EV’s, China at 90% and the rest of the world at 10%, and I’m not sure this gets Apple as excited as they wanted and needed to be.
4) Software defined vehicles
I’ve owned a lot of cars, and one thing that was always apparent is they got worse over time. If a light comes on in your car, it’s not going to be happy news, until now. Thanks to Software making up more of a car than ever, cars can get better over time thanks to Over-the-air updates. This is a big shift.
A while back everyone chose cars based on the brand, the design, but also power, miles per gallon, 0-60 and other performance figures as well as reliability.
Modern cars have become astonishingly good and similar, and for many buyers one of the 2nd or 3rd most important factors has been the “experience” of the car.
How good is the mapping software, how easy is it to use the screen, how well does it integrate with a phone, how easy is it to book a service, or diagnose a problem with it.
In a broader sense this is a move towards software being a key factor in how good a car can be and this was a reason for Apple to get excited.
The only problem is, while everyone is talking about how massive this opportunity is, I’m not quite sure thats really the case. For a few years Auto CEO’s have tripped over themselves to talk about the opportunities that come from being a software company. The dream is moving to a SAAS model with 99% profit margins where you can charge money for heated seats, for faster acceleration, for better sound quality, for not crashing, the list goes on.
The reality is that people hate this as much as an airline offering to not punch you in the face if you pay $50 “don’t touch me” boarding pass.
No car maker to date has ever come up with an idea worth paying for.
Every single new car today has a companion app, they allow you to set the AC temperature, unlock the car remotely, see where it is, perhaps to get it to move, but there seems to be almost no true differentiation in this space or real understanding of what people want.
Apple I’m sure could add some magic, pay for your fuel with Apple Pay, special offers on Apple Maps, but as more and more smartphone makers in China start to make EV’s, the limits of imagination as well as needs, become clear.
In Summary
Almost all car companies today succeed in making a handful of stunning prototypes and fail before making more than 1,000 identical ones. It is a wildly different business to make cars at scale, to sell and distribute them, or service them or keep spare parts or to make money doing so.
The car industry is a good example of my second favorite question, is it better to be new and build from scratch, or better to be a current player and adapt. We still don’t know.
The battle is hotting up.
Right now Chinese car companies who’ve had a trillion dollars indirectly thrown at them by the Government, and can afford to undercut prices across the globe, and can dominate making most components (especially batteries) cheaply thanks to dominating supply chains across the world, are about to be unleashed across the world.
The next few years will be fascinating, high end brands like Lucid and Rivian trying to follow Tesla’s playbook and move mass market
Cheap Chinese companies looking to win from the bottom up.
Traditional car makers rushing to adapt at scale
And Tesla, most likely looking to move to giving cars away and selling software and access