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Analyst Weighs On Why Auto Industry Needs Apple, Mercedes-Benz Exec Laughs Off Project Titan
As big media rides on the ‘Apple researching an electric vehicle’ bandwagon, one analyst lays out why the Cupertino firm could ultimately become a force to be reckoned with in autonomous cars.
Commenting on an influx of stories related to Apple’s rumored Project Titan, Morgan Stanley analyst Katy Huberty explains (via Forbes) why the world’s richest, most valuable company taking on the world’s most disruptable business makes a lot of sense.
While noting that Project Titan may not be a near-term event, she underscored that she wouldn’t be dismissive of Apple’s automotive ambitions.
“The auto industry also needs Apple, we argue, because after over 100 years of status quo, the industry needs a change agent,” she said. The automotive total addressable market is $10 trillion of installed base, with an annual new vehicle revenues of roughly $1.6 trillion.
“This dwarfs smartphones at $400 billion and PCs at $266 billion of annual revenue,” Huberty observed. “If Apple were to corner just 25 percent of the value of the car, it would be equivalent to the entire smartphone industry today.”
U.S. drivers spending about 25 percent of their free time in the car prompted the analyst to opine that “Apple will want to target this captive audience – especially if we go autonomous.”
”We note that Apple prefers to develop and design its products in-house, and to outsource the actual production and assembly process,” the analyst continued. “This could be enabled by cars going autonomous – we estimate over 60 percent of the value of the autonomous car will come from software vs. ten percent today,” she wrote.
Indeed, once you go past the engine and car mechanics, it’s all about software. Tesla’s vehicles, for example, receive fresh software updates on a regular basis.
Car firmware updates improve Tesla’s performance and energy efficiency — again, without making any physical change to the car’s design or engine other than refreshing its software.
Among other things, Apple is a software company so if they’re in fact working on an electric car project, software will be key. That’s, of course, assuming that Project Titan is an autonomous car.
It’s time for “some very powerful all-new players who don’t even make cars today,” Huberty wrote, calling it “a push toward Silicon Valley motors.”
By the way, famous industrial designer and Jony Ive’s friend, Marc Newson, who was recently hired by Apple and is now working with Ive, designed a 1999 concept car for Ford, seen below, as well as a bunch of other transportation vehicles.
Unlike The Financial Times and The Wall Street Journal which only mentioned an electric Apple vehicle, Reuters has upped the ante by making specific claims of the project being an autonomous self-driving car.
Reuters said the company is “exploring how to make an entire vehicle” rather than just designing automotive software akin to CarPlay. By the way, Mercedes-Benz Chairman Dieter Zetsche recently said he wasn’t concerned about Apple possibly building a car.
“If there were a rumour that Mercedes or Daimler planned to start building smartphones then they (Apple) would not be sleepless at night. And the same applies to me,” he told Australian website Motoring.com.au.
“And this is full of respect for Apple,” he added. “That is what I am saying.” While acknowledging he wasn’t privy to Apple’s product strategy, he struggled to find any rationale for Apple to build a car.
“Why Apple with this kind of margin would now go into this business,” he pondered. “I think investors will hate it because they don’t like conglomerates, they want focussed management on what they understand.”
He’s right about that, car making is a low-margin, heavy-manufacturing business. Not only cars cost a fortune to research and develop, the whole segment enjoys about ten percent return on investment (ROI) compared to Apple’s 25 percent ROI.
It should be noted that Daimler, owner of Mercedes-Benz cars, has lost its North American President and CEO of Research & Development, Johann Jungwirth, to Apple.
Jungwirth is now reportedly charged with assembling a thousand-people team for Project Titan, which is being led by product design Vice President and former Ford executive Steve Zadesky.
More on Apple’s automotive-related hires is available here.
Zetsche’s comment echoes remarks by former GM CEO Dan Akerson, who cautioned Apple to think twice before getting into hard-core manufacturing.
“We take steel, raw steel, and turn it into car,” he said. “They have no idea what they’re getting into if they get into that.”
“Look at the margins of an iPhone versus a car. I’d rather have the margins associated with the phone,” Akerson reasoned.
I don’t know about you, but both Zetsche’s and Ackerson’s somewhat dismissive remarks remind me of another famous quote made by Palm CEO Ed Colligan.
Eagle-eyed readers would recall Colligan’s rather shortsighted comment back in 2006, before the iPhone was announced. “We’ve learned and struggled for a few years here figuring out how to make a decent phone,” he said, adding that “PC guys are not going to just figure this out. They’re not going to just walk in.”
Source: http://www.idownloadblog.com/2015/02/25/morgan-stanley-apple-car/ and http://www.forbes.com/sites/brookec...anley-makes-case-for-apple-in-autonomous-cars
“This dwarfs smartphones at $400 billion and PCs at $266 billion of annual revenue,” Huberty observed. “If Apple were to corner just 25 percent of the value of the car, it would be equivalent to the entire smartphone industry today.”
U.S. drivers spending about 25 percent of their free time in the car prompted the analyst to opine that “Apple will want to target this captive audience – especially if we go autonomous.”
”We note that Apple prefers to develop and design its products in-house, and to outsource the actual production and assembly process,” the analyst continued. “This could be enabled by cars going autonomous – we estimate over 60 percent of the value of the autonomous car will come from software vs. ten percent today,” she wrote.
Indeed, once you go past the engine and car mechanics, it’s all about software. Tesla’s vehicles, for example, receive fresh software updates on a regular basis.
Car firmware updates improve Tesla’s performance and energy efficiency — again, without making any physical change to the car’s design or engine other than refreshing its software.
Among other things, Apple is a software company so if they’re in fact working on an electric car project, software will be key. That’s, of course, assuming that Project Titan is an autonomous car.
It’s time for “some very powerful all-new players who don’t even make cars today,” Huberty wrote, calling it “a push toward Silicon Valley motors.”
By the way, famous industrial designer and Jony Ive’s friend, Marc Newson, who was recently hired by Apple and is now working with Ive, designed a 1999 concept car for Ford, seen below, as well as a bunch of other transportation vehicles.
Unlike The Financial Times and The Wall Street Journal which only mentioned an electric Apple vehicle, Reuters has upped the ante by making specific claims of the project being an autonomous self-driving car.
Reuters said the company is “exploring how to make an entire vehicle” rather than just designing automotive software akin to CarPlay. By the way, Mercedes-Benz Chairman Dieter Zetsche recently said he wasn’t concerned about Apple possibly building a car.
“If there were a rumour that Mercedes or Daimler planned to start building smartphones then they (Apple) would not be sleepless at night. And the same applies to me,” he told Australian website Motoring.com.au.
“And this is full of respect for Apple,” he added. “That is what I am saying.” While acknowledging he wasn’t privy to Apple’s product strategy, he struggled to find any rationale for Apple to build a car.
“Why Apple with this kind of margin would now go into this business,” he pondered. “I think investors will hate it because they don’t like conglomerates, they want focussed management on what they understand.”
He’s right about that, car making is a low-margin, heavy-manufacturing business. Not only cars cost a fortune to research and develop, the whole segment enjoys about ten percent return on investment (ROI) compared to Apple’s 25 percent ROI.
It should be noted that Daimler, owner of Mercedes-Benz cars, has lost its North American President and CEO of Research & Development, Johann Jungwirth, to Apple.
Jungwirth is now reportedly charged with assembling a thousand-people team for Project Titan, which is being led by product design Vice President and former Ford executive Steve Zadesky.
More on Apple’s automotive-related hires is available here.
Zetsche’s comment echoes remarks by former GM CEO Dan Akerson, who cautioned Apple to think twice before getting into hard-core manufacturing.
“We take steel, raw steel, and turn it into car,” he said. “They have no idea what they’re getting into if they get into that.”
“Look at the margins of an iPhone versus a car. I’d rather have the margins associated with the phone,” Akerson reasoned.
I don’t know about you, but both Zetsche’s and Ackerson’s somewhat dismissive remarks remind me of another famous quote made by Palm CEO Ed Colligan.
Eagle-eyed readers would recall Colligan’s rather shortsighted comment back in 2006, before the iPhone was announced. “We’ve learned and struggled for a few years here figuring out how to make a decent phone,” he said, adding that “PC guys are not going to just figure this out. They’re not going to just walk in.”
Source: http://www.idownloadblog.com/2015/02/25/morgan-stanley-apple-car/ and http://www.forbes.com/sites/brookec...anley-makes-case-for-apple-in-autonomous-cars
Thoughts On An Apple Car
Over the last two weeks, there have been a series of reports that Apple is working on building its own electric car that could take on the likes of Tesla. While the Wall Street Journal reported that Apple’s car project, code-named “Titan”, was in the works with the company assembling a team of several hundreds of employees to work on the initiative, Bloomberg went on to say that a potential car could hit production as early as 2020. The prospect of seeing an Apple car are indeed exciting given Apple’s history of redefining product categories, but it also raises some questions. In this note, we discuss the implications of Apple’s potential foray into the automotive space.
Apple Has The Resources, Can Assemble The Expertise
Tesla Motors has proven that it is possible to build a successful car company from the ground up by combining strong leadership, the right group of people and a reasonable amount of capital. Tesla’s success also indicates that the barriers to entry into the automotive market are not as high as they were previously thought to be. The company has eschewed the traditional dealership model, instead choosing to sell its cars through its own retail locations or online, and has also been building its own after-sales service and charging infrastructure. Its success provides a level of confidence that Apple could also be able to build an automobile business. Apple has reportedly been aggressively hiring talent – ranging from automotive designers to vehicle dynamics engineers – away from car companies, and the company also has the product development experience and leadership needed to move the project forward. Apple also has the financial wherewithal (roughly $180 billion in cash) to fund the project or to acquire companies with the required expertise. Additionally, the Apple brand is likely to have significant cachet among the next generation of car buyers, which could make it easier for the company to compete against the established order in the automobile industry.
Project Could Be Lucrative If Apple Focuses On The High End
Electric cars presently represent a very small, yet rapidly growing segment of the automobile market in the United States. Although just about 120,000 plug-in vehicles were sold in the U.S. last year, it represents a 23% increase from 2013 and 128% increase from 2012. While industry-wide margins in the automobile industry in general are relatively low, the margins for a truly innovative electric car are likely to be much higher. For example, Ford has gross margins of under 13% while General Motors’ gross margins stand at below 9%. In comparison, Tesla has gross margins of above 27%, although it remains loss making owing to higher R&D costs and operating leverage. While this remains a far cry from the roughly 38% gross margins that Apple currently garners, we believe that this is something Apple can work with given its scale and the potential upside to overall earnings. However, Apple will likely have to focus on the high end of the electric vehicle market, much like Tesla, since this is the segment in which one can generate large margins. Additionally, making a high-end car would allow the company enough headroom to make a truly innovative product, without having to build a car constrained by costs considering the currently high battery prices.
Car Would Require In-House Manufacturing, Could Take Time
Much of Apple’s success in the consumer electronics space is attributable to its solid product and software development capabilities, as well as its sales and marketing strategy. However, manufacturing isn’t exactly in the company’s DNA, given that it has almost always outsourced production to contract manufacturers such as Foxconn and Quanta, with components sourced from large suppliers such as Samsung, Sony and Qualcomm. The concept of contract manufacturing isn’t really prevalent in the auto industry, barring some very high-end, low-volume cars. Entering the mainstream auto market will likely require in-house manufacturing on Apple’s part, and this is something that is likely to take time and effort, given that it entails building, tooling up and staffing manufacturing facilities and also developing a robust supply chain. Even Tesla has been facing issues and is struggling to ramp up production of its Model S sedan. While Apple is a dynamic company, building a culture of manufacturing is likely to take time. Additionally, Apple has a reputation for being relatively patient with its product development cycles, spending years until it perfects and polishes a product. For instance, the iPhone and the Apple Watch reportedly took roughly three years to build, and the timeframe to develop and bring to market a complex car could be much longer.
No Guarantee That It Happens
The project is reported to be in its infancy and there remains a possibility that an Apple-branded car may never see the light of the day. Many technology companies, including Apple, are known to investigate the possibilities of potential products by assembling teams and building prototypes that may never be commercialized, and it’s entirely possible that Apple could shelve the car project if it doesn’t meet internal expectations. Even if a final product doesn’t materialize, there are several technologies – such as batteries and software – used in an electric car that could be deployed in Apple’s consumer electronics business. Apple could also decide that it would be better off by providing hardware and software solutions (for example connected cars or self driving vehicle solutions) to power the next generation of automobiles rather than building out its own car.
Source: http://www.forbes.com/sites/greatspeculations/2015/02/25/thoughts-on-an-apple-car/
Tesla Motors has proven that it is possible to build a successful car company from the ground up by combining strong leadership, the right group of people and a reasonable amount of capital. Tesla’s success also indicates that the barriers to entry into the automotive market are not as high as they were previously thought to be. The company has eschewed the traditional dealership model, instead choosing to sell its cars through its own retail locations or online, and has also been building its own after-sales service and charging infrastructure. Its success provides a level of confidence that Apple could also be able to build an automobile business. Apple has reportedly been aggressively hiring talent – ranging from automotive designers to vehicle dynamics engineers – away from car companies, and the company also has the product development experience and leadership needed to move the project forward. Apple also has the financial wherewithal (roughly $180 billion in cash) to fund the project or to acquire companies with the required expertise. Additionally, the Apple brand is likely to have significant cachet among the next generation of car buyers, which could make it easier for the company to compete against the established order in the automobile industry.
Project Could Be Lucrative If Apple Focuses On The High End
Electric cars presently represent a very small, yet rapidly growing segment of the automobile market in the United States. Although just about 120,000 plug-in vehicles were sold in the U.S. last year, it represents a 23% increase from 2013 and 128% increase from 2012. While industry-wide margins in the automobile industry in general are relatively low, the margins for a truly innovative electric car are likely to be much higher. For example, Ford has gross margins of under 13% while General Motors’ gross margins stand at below 9%. In comparison, Tesla has gross margins of above 27%, although it remains loss making owing to higher R&D costs and operating leverage. While this remains a far cry from the roughly 38% gross margins that Apple currently garners, we believe that this is something Apple can work with given its scale and the potential upside to overall earnings. However, Apple will likely have to focus on the high end of the electric vehicle market, much like Tesla, since this is the segment in which one can generate large margins. Additionally, making a high-end car would allow the company enough headroom to make a truly innovative product, without having to build a car constrained by costs considering the currently high battery prices.
Car Would Require In-House Manufacturing, Could Take Time
Much of Apple’s success in the consumer electronics space is attributable to its solid product and software development capabilities, as well as its sales and marketing strategy. However, manufacturing isn’t exactly in the company’s DNA, given that it has almost always outsourced production to contract manufacturers such as Foxconn and Quanta, with components sourced from large suppliers such as Samsung, Sony and Qualcomm. The concept of contract manufacturing isn’t really prevalent in the auto industry, barring some very high-end, low-volume cars. Entering the mainstream auto market will likely require in-house manufacturing on Apple’s part, and this is something that is likely to take time and effort, given that it entails building, tooling up and staffing manufacturing facilities and also developing a robust supply chain. Even Tesla has been facing issues and is struggling to ramp up production of its Model S sedan. While Apple is a dynamic company, building a culture of manufacturing is likely to take time. Additionally, Apple has a reputation for being relatively patient with its product development cycles, spending years until it perfects and polishes a product. For instance, the iPhone and the Apple Watch reportedly took roughly three years to build, and the timeframe to develop and bring to market a complex car could be much longer.
No Guarantee That It Happens
The project is reported to be in its infancy and there remains a possibility that an Apple-branded car may never see the light of the day. Many technology companies, including Apple, are known to investigate the possibilities of potential products by assembling teams and building prototypes that may never be commercialized, and it’s entirely possible that Apple could shelve the car project if it doesn’t meet internal expectations. Even if a final product doesn’t materialize, there are several technologies – such as batteries and software – used in an electric car that could be deployed in Apple’s consumer electronics business. Apple could also decide that it would be better off by providing hardware and software solutions (for example connected cars or self driving vehicle solutions) to power the next generation of automobiles rather than building out its own car.
Source: http://www.forbes.com/sites/greatspeculations/2015/02/25/thoughts-on-an-apple-car/
Apple Wants to Start Producing Cars as Soon as 2020
Apple Inc., which has been working secretly on a car, is pushing its team to begin production of an electric vehicle as early as 2020, people with knowledge of the matter said.
The timeframe -- automakers typically spend five to seven years developing a car -- underscores the project’s aggressive goals and could set the stage for a battle for customers with Tesla Motors Inc. and General Motors Co. Both automakers are targeting a 2017 release of an electric vehicle that can go more than 200 miles on a single charge and cost less than $40,000.
“That’s the inflection point -- the proving ground -- that brings on the electric age,” Steve LeVine, author of “The Powerhouse,” a book about the automotive battery industry, said on Bloomberg TV Thursday. “Now you have Apple coming in and this is critical mass. Was GM really going to be able to match Tesla? Apple can.”
Apple, which posted record profit of $18 billion during the past quarter, has $178 billion in cash with few avenues to spend it. The Cupertino, California-based company’s research and development costs were $6.04 billion in the past year, and Chief Executive Officer Tim Cook is facing increased pressure to return cash to shareholders. The CEO has been pushing the iPhone maker to enter new categories to further envelop users’ digital lives with Apple’s products and services.
Apple’s possible foray into cars follows a similar path it’s taken to break into other industries. The company wasn’t the first to make a digital-music player or smartphone, and only entered those markets once it had a product that redefined those categories.
Apple representatives declined to comment for this story.
Car Team
Tesla’s success in creating a startup car company has shown that the traditional barriers of entry into the auto industry aren’t as difficult to overcome as originally thought, said one person, who asked not to be identified because the matter is private. At the same time, automakers have struggled to bring technical leaps to car development, something that Silicon Valley is also seeking to accomplish. For example, Google Inc. has invested in developing an autonomous vehicle since 2010.
“Apple would have some advantages as a new entrant to the auto industry,” including its cash, ability to connect with its own devices and the infancy of the electric-vehicle market, Barclays analysts Ben Reitzes and Brian Johnson wrote in a note to investors. “Finally, Apple’s brand – arguably the most important advantage – is a big attraction for the next generation of car customers.”
Apple may decide to scrap its car effort or delay it if executives are unhappy with progress, as they’ve done before with other secret projects, the people said. The car team, which already has about 200 people, began ramping up hiring within the past couple of months as the company sought out experts in technologies for batteries and robotics, said one of the people.
Battery Lawsuit
An experienced automaker typically spends five to seven years developing a new vehicle before bringing it to market, according to Dennis Virag, president of Automotive Consulting Group.
“If you’re starting from scratch, you’re probably talking more like 10 years,” Virag said. “A car is a very complex technological machine.”
A lawsuit filed this month gives a window into Apple’s efforts to create a automotive team for the project. Apple began around June an “aggressive campaign to poach” employees from A123 Systems LLC, the Waltham, Massachusetts-based battery maker said in the lawsuit.
Apple hired five people from A123 and has tried to hire battery experts from LG Chem Ltd., Samsung Electronics Co., Panasonic Corp., Toshiba Corp. and Johnson Controls Inc., according to the lawsuit.
“Apple is currently developing a large-scale battery division to compete in the very same field as A123,” the battery maker said in a separate state-court filing.
The recent hiring effort at A123 began with Mujeeb Ijaz, a former Ford Motor Co. engineer, who founded A123’s Venture Technologies division, which focused on materials research, cell product development and advanced concepts. He began at Apple in June and began hiring direct reports from A123’s venture technologies division, which he had headed.
Tesla CEO Elon Musk told Bloomberg Businessweek this month that Apple was seeking to hire away his workers, offering $250,000 signing bonuses and 60 percent salary increases.
Bricks and Mortar
“Apple is good at developing technology but car making is, and will continue to be, a bricks-and-mortar proposition,” Matt DeLorenzo, an analyst at Kelley Blue Book, wrote in an e-mail. “Apple will need a partner, perhaps a Chinese manufacturer, with an infrastructure if it’s going to hit the five-year goal.”
Some parts of the automotive industry seem unfazed by Silicon Valley’s increasing interest in the market. Last month, before Apple’s efforts were revealed, Volkswagen AG Chief Executive Officer Martin Winterkorn brushed off the increasing competition.
“We’re not afraid of these new competitors,” Winterkorn said at a reception outside Stuttgart, Germany, according to a transcript obtained by Bloomberg. “The opposite is true: they encourage us to look more intensively into the chances of the digital world.”
Source: http://www.bloomberg.com/news/artic...o-be-targeting-car-production-as-soon-as-2020
Apple’s possible foray into cars follows a similar path it’s taken to break into other industries. The company wasn’t the first to make a digital-music player or smartphone, and only entered those markets once it had a product that redefined those categories.
Apple representatives declined to comment for this story.
Car Team
Tesla’s success in creating a startup car company has shown that the traditional barriers of entry into the auto industry aren’t as difficult to overcome as originally thought, said one person, who asked not to be identified because the matter is private. At the same time, automakers have struggled to bring technical leaps to car development, something that Silicon Valley is also seeking to accomplish. For example, Google Inc. has invested in developing an autonomous vehicle since 2010.
“Apple would have some advantages as a new entrant to the auto industry,” including its cash, ability to connect with its own devices and the infancy of the electric-vehicle market, Barclays analysts Ben Reitzes and Brian Johnson wrote in a note to investors. “Finally, Apple’s brand – arguably the most important advantage – is a big attraction for the next generation of car customers.”
Apple may decide to scrap its car effort or delay it if executives are unhappy with progress, as they’ve done before with other secret projects, the people said. The car team, which already has about 200 people, began ramping up hiring within the past couple of months as the company sought out experts in technologies for batteries and robotics, said one of the people.
Battery Lawsuit
An experienced automaker typically spends five to seven years developing a new vehicle before bringing it to market, according to Dennis Virag, president of Automotive Consulting Group.
“If you’re starting from scratch, you’re probably talking more like 10 years,” Virag said. “A car is a very complex technological machine.”
A lawsuit filed this month gives a window into Apple’s efforts to create a automotive team for the project. Apple began around June an “aggressive campaign to poach” employees from A123 Systems LLC, the Waltham, Massachusetts-based battery maker said in the lawsuit.
Apple hired five people from A123 and has tried to hire battery experts from LG Chem Ltd., Samsung Electronics Co., Panasonic Corp., Toshiba Corp. and Johnson Controls Inc., according to the lawsuit.
“Apple is currently developing a large-scale battery division to compete in the very same field as A123,” the battery maker said in a separate state-court filing.
The recent hiring effort at A123 began with Mujeeb Ijaz, a former Ford Motor Co. engineer, who founded A123’s Venture Technologies division, which focused on materials research, cell product development and advanced concepts. He began at Apple in June and began hiring direct reports from A123’s venture technologies division, which he had headed.
Tesla CEO Elon Musk told Bloomberg Businessweek this month that Apple was seeking to hire away his workers, offering $250,000 signing bonuses and 60 percent salary increases.
Bricks and Mortar
“Apple is good at developing technology but car making is, and will continue to be, a bricks-and-mortar proposition,” Matt DeLorenzo, an analyst at Kelley Blue Book, wrote in an e-mail. “Apple will need a partner, perhaps a Chinese manufacturer, with an infrastructure if it’s going to hit the five-year goal.”
Some parts of the automotive industry seem unfazed by Silicon Valley’s increasing interest in the market. Last month, before Apple’s efforts were revealed, Volkswagen AG Chief Executive Officer Martin Winterkorn brushed off the increasing competition.
“We’re not afraid of these new competitors,” Winterkorn said at a reception outside Stuttgart, Germany, according to a transcript obtained by Bloomberg. “The opposite is true: they encourage us to look more intensively into the chances of the digital world.”
Source: http://www.bloomberg.com/news/artic...o-be-targeting-car-production-as-soon-as-2020
