| A rendered image of Apple's iCar |
By Kim Yoo-chul
BMW would be the "ideal partner" for Apple as both companies have claims to innovative leadership, superior brand equity and design and are excellent in global manufacturing with value chain management.
"Apple has various partnerships with carmakers and many have integrated Car Play into their infotainment systems. Furthermore, BMW is the first brand to offer a digital car key via the iPhone. Therein lies an important question for Apple to answer: 'Building a car' versus 'getting into the car,'" A.M. Sacconaghi and Arndt Ellinghorst, Wall Street analysts at Bernstein Research covering U.S. IT hardware, said in a 28-page analysis to clients, Thursday.
Apple's interest in the automotive market makes sense for various reasons. The car market can be a uniquely high-end market and Apple has a history of achieving attractive margins in low-margin industries through its premium product positioning. Additionally, Apple will likely be able to subcontract out vehicle manufacturing and possibly leverage a broad industry supply chain, a core competency of the firm.
Regarding the production type of the so-called iCar, experienced automotive analysts said Apple will be able to subcontract manufacturing of the vehicle to an established original equipment manufacturer (OEM) or manufacturers and potentially partner with leading battery makers.
Apple traditionally subcontracts manufacturing to Asian companies such as Foxconn and Pegatron and airfreights finished products overnight to the demand location. The company sources key components such as processors, displays and memory chips from third-party suppliers, some of whom they also have historically competed against such as Samsung Electronics. Plus, Apple also invests intensely in its component and manufacturing partners including Samsung and LG Group's tech affiliates.
Could a car supplier build the iCar? According to the investment analysis, a supplier would not have the direct competitive conflicts that an OEM would face. "With regard to well-established contract manufacturing capabilities, Magna and its Austrian subsidiary Magna Steyer spring to mind as a potential manufacturing partner for Apple," they said.
LG Electronics set up a joint venture with Magna recently. And if the Apple scenario happens, LG would see an upgrade of its brand positioning in the lucrative electric vehicle (EV) parts sector.
Regarding the possibility of manufacturing Apple vehicles, LG said it can't comment on client-related issues.
Traditional carmakers can be expected to be "very careful" when exploring a manufacturing partnership with Apple.
"Clearly any OEM does not want to end up becoming a mere enabler for one of the world's largest and best financially equipped tech players, dealing with Apple's extreme supply chain management," the analysis said.
What might be the source of the differentiation from a tech standpoint?
Given Apple's feature-absolutist design mentality, its aspiration would be to make the car "truly self-driving," enabling a fundamentally redesigned interior. But it's still unclear whether autonomous capability beyond level three and/or off highways will be technologically in place by 2025, let alone accepted by regulators. But based on publicly available filings, it's unclear whether Apple's autonomous driving technology has achieved a leadership position.
On the battery supply side, Apple has yet to point to any unique battery technologies despite its earlier vehicle-related patents, which has shown its technology related to detection sensors, active suspension systems, adjustable windshields and climate control, Apple is set to discuss with LG Energy Solution (LGES), Samsung SDI and CATL of China for battery capacity doubling.
"We believe that the hurdle for Apple being able to offer a unique travel range will be high, given vehicles today are currently at 400-plus miles and battery makers have discussed a potential doubling of energy density over time," the senior analysts said.
Officials at LGES and Samsung SDI said they weren't in a position to talk about client-related issues.