Apple faces major obstacles to becoming a car company—or even a supplier of navigation and infotainment systems voluntarily integrated into vehicles by auto manufacturers. Hopelessly addicted to rich margin, premium iPhones, Apple doesn’t have much to offer automakers, and what little it could offer will be rejected for good business reasons.
Apple designs premium smartphones and consumer products, contracting their manufacture to a mature Chinese supply chain. Reports by Bloomberg and The New York Times about Apple’s shift in its autonomous car program missed this most fundamental point. But the shift from building an autonomous electric vehicle (EV) to building the software that guides self-driving vehicles will not earn Apple a leading position in the autonomous vehicle business.
Here are seven reason why Apple won’t win this battle:
1. Car makers are resistant to becoming low-margin hardware suppliers for Silicon Valley internet companies. Car makers fear a standard car operating system that demotes their brand and limits their returns. Apple Auto and Android Auto enforce a barrier between the phone makers and the car makers, keeping the phone outside of vehicle dashboards. Automakers won’t become dependent on an Apple proprietary autonomous vehicle technology.
German automakers have been especially resistant to ceding the heart of their core business to Silicon Valley. A co-branded, BMW/Apple premium car is unimaginable.
2. Apple does not supply components to complete other companies’ consumer products. Apple has never sold a component product that enhances and improves another company’s product. Tier 1 automotive OEMs (pdf) such as Robert Bosch and Denso do this by investing in research to improve component products that automakers use to build cars. All of Apple’s research is focused on producing consumer end products. Although not completely impossible, Apple’s R&D and product teams would have to learn to operate like a Tier 1 OEM.
Apple is unaccustomed to alternative revenue models for selling component technologies. Google might give away its autonomous driving technology, monetizing geolocation data to pay a return on its R&D—like it monetizes search data and Android. Apple has never built a product that fits this model.
3. Autonomous navigation systems require machine learning expertise that Apple doesn’t have. Autonomous cars learn to drive with driving data using machine learning. Apple has some expertise in artificial intelligence (AI) and machine learning, but it isn’t a leader because of its secretive research strategy. Machine learning R&D is open and collegial among corporate research teams and universities, except Apple chooses not to participate in working groups, run meetings or publish research. Google, Facebook, IBM, Microsoft and universities openly collaborate and co-author research papers together. Machine learning lurkers like Apple can’t lead open innovation like machine learning because the top talent attracted to this type of research won’t work in secrecy.
4. Autonomous car innovators will not share machine learning data with Apple. The machine learning component of autonomous vehicles require millions of miles of actual driving data. The raw material for building autonomous vehicles is the three-dimensional video captured by on-board forward-facing cameras, steering angles and sensor data accumulated by driving actual vehicles. Tesla acquired millions of miles of data from its owners' cars before turning on partially autonomous driving features. Since 2012, Google autonomous cars have travelled about 2 million miles—far fewer than Tesla and many more than Apple’s secretly tested vehicle—but all truly autonomous.
Apple’s driving data, all accumulated in secrecy, is millions of miles of behind Tesla and years behind Google. The only way Apple can shorten the development time is to acquire more driving data from other companies. Google and Tesla have not agreed to share their data. Even if they do, given Apple’s closed innovation model, Apple has nothing to trade in return for driving data.
5. Autonomous car companies will not use Apple Maps in their vehicle guidance system. Apple Maps is a defense strategy for eliminating Google Maps from its iPhones to stop Google from deriving advertising revenue from iPhone customers with geolocation data. Apple doesn’t have the business model to monetize geolocation data any more than Microsoft Bing can monetize search data.
Audi, BMW and Daimler bought Nokia’s Here mapping system to ensure independent mapping and navigation systems and data. If Apple had a superior product and a trusted partner business model, the German car makers would have partnered with Apple Maps.
6. The mobile app economy is producing more attractive infotainment ecosystem options for automakers than iTunes. Automakers will have to accommodate drivers’ iTunes libraries through their dashboard, but Spotify and Pandora and other streamed media app companies are neutral partners for integration into an automakers’ infotainment system.
7. Apple doesn’t have the manufacturing experience to build an EV, and the EV supply chain is too immature. Most of the components used to build EVs are engineered differently than combustion engine-powered vehicles. A robust and enabling EV supply chain that makes diverse components and manufacturing supply chains that serve the mobile and consumer business are still developing in the EV sector. Apple doesn’t have the manufacturing expertise to build an EV without a mature supply chain like the mobile supply chain behind it.
The technology in EVs is different, and EV components are engineered and manufactured differently. These technologies are most efficiently developed by suppliers that can generate a return on the investment by supplying the entire industry. Getting elbow to elbow with innovative suppliers to develop new components that will benefit the whole EV business isn’t in Apple’s DNA.