The Tech Giant, Apple Plots a Foray into Car Market

By – Ashwathy Nair

Apple Inc. approaches to launching new products.
The tech giant could adopt a strategy of working with a contract manufacturer.
Apple might develop an autonomous system for the vehicle.

Apple Inc. has attempted as well as tried to implement a genuine approach to the launch of its new products: the company designs in-house, supplies its own parts, and works with the contract manufacturer to produce them for sale.

Apple, as a tech giant, is now plotting a foray into the car market, it could be adopting a similar strategy, which is working with a lesser-known contract manufacturer – after talking with some brand, name automakers stalled.

Attempting to make a vehicle, Apple has three primary options: working with an established carmaker; building its own production facilities; or teaming up with a contract manufacturer like Foxconn or Magna International Inc.

Cupertino, which is a California-based company that has reached out to automakers together with Hyundai Motor Co., but the discussions didn’t go well. In such a situation, the tech giant would be developing an autonomous system for the vehicle, the interior as well as external designs, and onboard technology, while leaving the final manufacture to the carmaker. A deal like this would be essentially asking an existing car company to shed its brand and to become a contract assembler for a new rival.

A former manager at both Apple and Tesla Inc. stated that this would be like asking Apple’s bitter smartphone competitor Samsung Electronics Co. to produce an iPhone. The person stated that Apple is willing to challenge the assumptions of how a car works – how seats are built, how the body looks. The traditional automaker would not be able to fund such a potentially disruptive competitor, was stated by the individual who asked not to be identified to fix privacy concerns.

Indeed, negotiations between Apple and the automotive industry seem to have faded over the last few months. Hyundai and Kia Motors Corp. have announced discussions on the production of an electric vehicle, but will soon be backtracked. Apple’s self-driving car team worked with Ferrari NV leaders last year. It’s not clear what was addressed, however, according to a person familiar with the meeting, the talks did not progress.

In February, Nissan Motor Co. stated that it was not in talks with Apple. The Chief Executive Officer of Volkswagen AG, Herbert Diess stated that he is “not scared” of the tech giant, Apple’s entry into the car market.

The auto industry’s operating margins are smaller than Apple’s current model, Goldman Sachs analysts wrote to investors in a recent report. Some luxury brands, such as Ferrari, are more productive, but these are “extreme cases and potentially difficult to reproduce at higher volumes,” the analysts added.

The president of the CarLab consulting company, Eric Noble stated that Apple is more likely into going with the contract manufacturer because that’s the business model they’re used to. He believes that an alliance with an established carmaker will be a power struggle because both firms are used to tightly control their supply chains.

As per the industry insiders, this is the reason why Foxconn and Magna are two primary contenders for Apple’s business.