Business Driver: iCar unlikely as Apple eyes a bigger role in auto world
The world's biggest company may never make cars, but its influence on industry keeps growing
Mainstream and trade media recently whipped up frenzy over a reported meeting between Tesla CEO Elon Musk and Apple executives.
With the kind of speculative drool typically reserved for a Kardashian wedding or a Justin Bieber house party, theories and rumours spread thick and fast the moment the San Francisco Chronicle broke the story.
Initial reactions hinted at possible takeover talks. From the get go, that seemed a stretch.
Yes, the smartphone giant seems stumped with its own product line and needs to expand or innovate to keep itself relevant and valuable. Yes, Apple is sitting on mountains of cash — estimated at more than $150 billion — and Tesla’s market cap is only $25 billion.
But companies tend to avoid jumping into cost-intensive industries (such as auto making) they don’t know. It may happen a decade down the road but chances of an immediate entry is close to nada.
Musk’s somewhat delayed response to the speculation put all acquisition theories to rest. Although he did not reveal any details of his discussions with Apple, Musk emphatically confirmed to Bloomberg that a takeover is “unlikely.”
Industry watchers are now thinking that collaboration may be a more realistic outcome, particularly in the area of battery technology.
That possibility rests on Musk’s recent announcement that he wants to build a giant factory, capable of churning out 500,000 lithium-ion cells a year, a mind-boggling number that exceeds the combined global supply of these batteries right now. The proposed facility, which the Tesla executive wants up and running by 2020, would require $4-5 billion to build.
Many think that Apple could help out. What would it gain?
Insights into making cheaper and better batteries, which in turn could help its cellphone business. Also, a first taste of the business of car making.
Apple clearly sees vehicles as an important part of its business.
It has been working with several automakers for the past few years over bringing its operating system to cars. This month, the company strengthened its hold on the industry with the launch of CarPlay at the Geneva Motor Show. The new system will turn the dashboard of a compatible car into an iPhone extension — essentially all your iPhone content, including the voice recognition software Siri, will be available through an Apple-driven interface on your vehicle’s infotainment system.
Most major automakers — Ford, Honda, BMW, Mercedes-Benz, Hyundai, to name a few — are on board.
Even before the imminent iOS invasion, Apple — or, rather, its visionary innovation and way of doing business — had been making its influence felt on the auto industry in other ways.
Executives from Designworks, a BMW-owned consultancy that works with companies over product esthetics, have openly acknowledged the role of the iPod and iPhone in making white sexy again in the world of cars — a marketplace that has been historically dominated by silver and black.
OK, that one may smack of frivolity, but the impact of Apple’s retail model in selling cars presents a stronger case.
Tesla stores, with its flashy displays and product experts, are obvious examples. But, even the likes of BMW, Cadillac and Toyota have been fashioning a part of their dealership workforce after so-called “product geniuses” at Apple stores.
These employees are not the “dreaded” salespeople. Rather, they are tech specialists whose only job is to explain vehicle features, organize virtual tours or even make house visits to potential or new customers.
The idea is to clearly separate the sales process from the product exploration process, tackling at once the task of communicating the complex features of today’s vehicles and the customer unease over selling pressure while trying to make a purchase decision.
Audi is probably going the furthest in adopting the Apple store model. The German luxury automaker opened its first digital store in London last year and plans to open at least 15 more of them in tier-1 global cities by 2016.
These outlets are high-tech experience centres, typically located in high-volume downtown areas, where the goal is to immerse a potential customer into the brand with interactive displays and product experts. No sales pressure, just browse.
Corporations and its stakeholders like familiarity, as it reduces risk.
As cars become more smartphone-ish and the business of selling cars finally steps into the 21st century, Apple may find more reasons to secure its hold on the industry.
But, for those of you who would like to see an iCar in your garage, my advice is: don’t hold your breath.
I guess you just to have to make do with the iPhone for some time to come.
Kumar Saha is a Toronto-based automotive analyst with the global research firm Frost & Sullivan. Email: email@example.com.