It isn’t news to the years that Apple inc has been defining luxury in the smartphone industry with iPhone. But as the global brand aims at the luxury car market with an electric car, well, there are many factors to tackle at hand.
If Apple is going to make a success of its vehicle, which is believed to be a few years from today, it is looking an upending $230 billion luxury automobile market-facing directly with the more than century-old establishments like Mercedes-Benz. And it won’t be an easy nut to crack.
Apple incepted its venture in the direction of building its vehicle back in 2014 and has faced a fair share of peaks and troughs. From numerous false starts, high attrition between 2016 and 2019 due to increased costs and rumbling shifts of focus from electric vehicles to self-driving technology.
TESLA’S EXPERIENCE AND CONTRACT MANUFACTURING TO THIRD PARTY
Tesla, an automotive brand leading in the race of electronic cars, which has seen the recent stock market success, overcame various shortcomings when it comes to the production of the electronic cars having endured manufacturing problems and missing production goals.
Given this, if Apple’s CEO Tim Cook wants to move ahead in his journey, contracting the manufacturing to a third party can be one of the first major choices he has to make.
SEA OF OPTIONS TO CHOOSE FROM
When it comes to going ahead with this car project and the above choice of choosing someone to steer the brand through the sea of engineering problems to the solutions coast. Like Magna did about a half a decade ago.
Today, however, the options have expanded and part from the Candian company Magna, there is recent automotive industry enterer and Apple’s contract partner for iPhone manufacturing, Foxconn Technology Group. To step into the automobile industry last year, it established a joint venture with Fiat Chrysler Automobiles, the automaker merging with PSA Group.
But of course, some of the names in this list of suited candidates have to be established automakers that solve the problems on the manufacturing level.
EXCLUSIVE TECHNOLOGY, NOT THE SIMILAR SCENARIO AS iPhone
Apple enjoys a reputation for a good edge for technology, the Californian company is the biggest player when it comes to being the grabber of the latest technology and profit generator for suppliers. Given its position in consumer electronics if the Californian company demands exclusivity on the latest cutting-edge 3-D sensor technology, say, suppliers fall over themselves to contribute to hundreds of millions of iPhones sold each year.
However, the car industry is a different story, as Apple learned in 2016. Given the little visibility into how many vehicles are expected to ship in its first year, or when that might happen, there was little incentive for a supplier to provide any components exclusively given there is a customer who would sell some 10 million vehicles that year like Volkswagen Group.
WILL APPLE ACCEPT TEAMING UP
Well, the above situation of no technology exclusivity given the competition makes teaming up with an established player, a safe and optimal option. This can be a calculated risk taken with five major contenders including VW, the Renault-Nissan-Mitsubishi Alliance, Volvo and its Chinese parent Geely Automobile Holdings, General Motors and, Hyundai’s partnership with fellow Korean manufacturer Kia.
With each of these brands has developed electric vehicle platforms, they have enough scale to prompt suppliers to scramble for contracts. And teaming up won’t be new as there’s already a willingness to build vehicles for other brands like VW’s already working with Ford, and GM with Honda.
PROS AND CONS OF TEAMING UP
Apple’s journey to drive to a drop location in terms of business in the luxury car industry by teaming up offers the pro of low fixed costs and poses a challenge when it comes to profitability. Given that. a contract manufacturer usually costs about a certain per cent more than self-manufacturing.
A simple comparison between Tesla and Apple highlights the slim profit margins in the automaking industry. Apple’s gross margin on the iPhone is double what Tesla, according to Bloomberg News reported in 2018, likely enjoys a gross profit margin of about 30 per cent on the Model 3.
Battery, being the biggest outlay in electric vehicles with no benefit from economies of scale due to the fixed cost of raw materials, offers a challenge for Apple to work on battery technology if it wants to successfully curb luxury car industry.
TARGETING A DIFFERENT LUXURY CLIENTELE
While we are at comparing iPhone and Apple car in terms of the fact that both will be Apple products, it is a notable fact that unlike the millions of iPhones available around the globe, Apple is not going to make a mass-market car and use price as a bridge to cover its costs. The luxury vehicle is likely to be priced north of $100,000, particularly if it has self-driving capabilities that use sophisticated lidar technology.
This would mean, even while remaining in the luxury segment and having the same pricing strategy in theory, in reality, Apple would be targeting a completely different spending bracket, which would not be easy. Apple has a good reputation with its knack for software and design which may even affect the battery technology, though, in this race, these advantages may not last forever, they do mean, Apple could strike a luxury car price.