Apple Car Crumble

Software, mechanical and electrical engineers working for auto makers received a huge self-esteem injection this week as events unfolding at Apple suggested that the company had abandoned long-rumored plans for building a car. Considering the fact that Apple still hasn’t delivered a decent navigation app with traffic services, it’s hardly a shock that the company would consider making a car to be a bridge too far.

The bottom line is that making a car IS a pretty tough task. In many respects cross-town rival Tesla Motors has made the whole process look – at least outwardly – entirely too easy, if expensive. The hiring binge at Apple that suggested interest in the automotive industry and the firing binge reflecting its denouement reveal a newly realistic Apple.

It appears that Apple retains an abiding interest in developing automated driving technology, at least according to “observers” and “insiders.” But a car developed in house or in partnership with an existing car maker now appears unlikely.

Observers and analysts were quick to point out that Apple only focuses on high margin opportunities. The theory here is that the low margins in the auto industry created a sour grapes scenario for Apple thereby leading to a bowing out of the race to build a car.

The margin argument is a quaint and convenient one and it ignores the fact that Apple changes the economics of the markets it enters. The whole argument for Apple entering the automotive industry was that it would change the game and rewrite the rules.

By definition, if Apple found certain conditions in the market to be unfavorable, Apple would alter those conditions. Apple fans were looking to Apple to bring innovative transportation solutions to the market that would help reduce traffic, congestion, highway fatalities and fossil fuel consumption.

It is more likely that Apple came to the conclusion that it not only lacked any novel new solutions to these transportation challenges, but adding even MORE cars to the equation would be unhelpful and therefore both financially and spiritually unrewarding. There were bigger barriers for Apple to overcome than low margins. Low margins (negative margins?) haven’t stopped Tesla Motors.

The reality is that Apple is not built or positioned to take on the automotive industry and nothing in its various product offerings suggest a grasp of what it takes to make a car. The nature of creating a car requires an extraordinary level of cooperation and coordination between teams working on different systems.

The internal operational security within Apple, which limits communication between teams, is a big barrier to this kind of collaboration. Additionally, the regulatory oversight and liability exposure characteristic of the auto industry are enough to scare away even the bravest and most robust legal department.

Finally, it’s pretty clear that Apple has always regarded the car as an accessory to the Apple eco-system, which remains true. Apple continues to deliver devices produced under highly controlled circumstances encompassing hardware and software and which work universally and globally in a predictable manner.
Apple’s product development and design discipline have served the company well in its run up to dominance in the smartphone market. Apple’s automotive integrations, such as CarPlay, are universally more predictable and easier to use – even if Apple’s resistance to adopting industry standards periodically creates nightmares for car companies.

This resistance to industry standards is yet another limitation for Apple’s ambitions. When it comes to connectors and interfaces it’s Apple’s way or the highway. It looks like Apple will have to hitch a ride on the automotive highway for the foreseeable future. And that’s very reassuring for all those who design and build cars for a living. It’s a tough job. Thank you for seeing and accepting that, Apple.

Roger C. Lanctot is Associate Director in the Global Automotive Practice at Strategy Analytics. More details about Strategy Analytics can be found here: https://www.strategyanalytics.com/access-services/automotive#.VuGdXfkrKUk