Apples long way to build Cars

Apple has built no cars. Google has designed and outsourced the production of a small fleet of self-driving pod mobiles.

The newest carmaker on the block, Tesla, managed to build just 50,000 cars in 2015.

Meanwhile, in the US alone, the traditional auto industry built and sold 17.5 million cars and trucks.

This glaring imbalance between current reality and a highly speculative vision of the future hasn’t stopped pundits and tech and auto observers from transforming Apple and Google into serious auto-industry challengers.

For example, this is from a recent report by Reuters:

[G]oogle may choose to build its own engineering and design prototypes, then partner with a Chinese automaker or an Asian contractor such as Hon Hai Precision Industry’s Foxconn Technology Co that wants to enter the automotive field, several experts said.

Given Apple’s extensive iPhone and iPad manufacturing in China, it’s also been suggested that the Cupertino, California, colossus would skip out building a car in the US and would do it in the Middle Kingdom.

It’s an attractive idea, but it overlooks the vast gulf that exists between assembling smartphones and making cars. Tesla is among the most technologically advanced automakers around, and it still has to make its vehicles in a large factory with millions of dollars of giant robots and huge machines designed to bend metal. A large factory in Northern California.

The rest of the US auto industry builds the cars it sells in the US predominantly in the US. As such, the Detroit Big Three are major employers, as are the Japanese and German „transplants,“ as they’re know, which build cars and trucks in southern US states with nonunion workforces.

Some production has been moving to Mexico, but Mexico has been positioning itself as a NAFTA manufacturing partner to US companies for some time and has invested is developing an automotive supply chain.

China calls the shots

China is a different story. Ford, GM, Volkswagen, and others build cars there and sell them under familiar brands, but they can’t do this without entering into a joint venture with a Chinese partner. There’s an obvious compromise baked into this arrangement: Foreign automakers gain access to the enormous Chinese market, but they also end up sharing R&D.

Foxconn Kin Cheung APKin Cheung/APThey aren’t building cars.

It isn’t exactly a joining of equals, but Chinese automakers don’t see themselves as mere assembly lines for Western designs. They see themselves as developing a robust national manufacturing base. And while they’re building Buicks, they’re also building Chinese-brand cars and trucks.

With Apple and Google, the idea seems to be that these companies will try to transform consumer-goods manufacturers into automakers. There might be something to this in theory: Remake the automobile by designing and building it like a piece of internet-enabled consumer tech. But in practice, the car-building part of building an automobile, even an innovative self-driving one, tends to catch up to the visionaries, as Tesla has learned.

Profit margins under stress

Additionally, in Apple’s case it would be necessary to harvest a much wider profit margin than the auto industry typically throws off: 30% vs. 10% — or less, in bad times. And if you think Apple or Google has designs on selling all-electric driverless tech to willing Chinese customers, making China and not the US or Europe the main market, then you haven’t thought through either China’s congested big cities, a nightmare for driverless cars, or its still-developing roadway system, which is friendlier to trucks and SUVs.

So the game plan, as it’s being discussed outside Apple and Google, would be to build cars outside the US, using cheaper Asian labor, and then import them.

It sounds great because for Apple, in particular, that’s been a pathway to massive success.

But when it comes to the auto industry, it would be impossible. Not impossible to build some kind of more or less traditional car, but impossible to build the wildly disruptive car of the future.


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