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Getting to the core of Apple’s next big bite

V SUMANTRAN | Updated on January 24, 2018 Published on February 19, 2015

Patient capital: Tesla Motors admits that its electric car business will not be profitable until the next decade.

V SUMANTRAN

The electric car idea comes at a time when the auto industry is ripe for disruption

Whoever claimed that the auto industry has lost its magic, allure and romance has obviously not spoken to the boffins at Google and Apple.

If the word going around is to be formally confirmed by Apple, their Project Titan would be the latest in a line of innovators and investors to throw their hat into the ring to have a go at this business. With a hoard of $175 billion, they have five times more cash to play with than Volkswagen and can comfortably afford to bankroll GM’s capital investments until 2035. As Elon Musk, the founder of Tesla and himself no skinflint has volunteered, Apple “is running out of ways to spend their money.”

Time for change

There is no doubt that the auto industry shows many signs of being ripe for disruption. Global patterns of urbanisation have changed mobility needs and faced with growing population density, most cities are changing tack. As the former Transport Commissioner of New York stated, we had so far designed cities to be car-friendly – now the realisation is that we had better design cities to be people-friendly. 

As the millennial generation and indeed empty-nesters have rediscovered the attractions of city-life, they view mobility through a different lens. To this we add the layer of technology enablers and the world of analytics and apps – tools to help you optimise the way you travel.

Multimodal commutes in large cities often involve less hassle, less cost and less time when powered by tools that do everything from letting you know when the bus/metro is due, share a ride, hail an Uber cab or even guide you to park your “rent-as-you-need” Car2Go.

These economic and ecological benefits are further aided by revolutions in vehicle propulsion. The spectrum of electric vehicles (EVs), plug-in hybrids, and perhaps even the resurgence in fuel cell EVs all point to a shift in competence needed – electric motors and electronics will play a larger role compared to mastery of combustion. Even Formula-1 motor-racing has seen the established order toppled with the advent of emphasis on energy recovery and hybrid technology. Employment of these technologies is less a matter of exuberant technological one-upmanship and more a necessity in the face of tougher CO{-2} emission regulations.

New frontier

In this scenario one can understand why the innovators of Silicon Valley would chomp at the bit for another frontier to tackle. They understand young consumers, have mastered apps and analytics and know how to manufacture electronics in volume. In terms of scale, the auto industry is a worthy new frontier.

Yet as one who made the transition from the electronics sector to automaking, Dan Akerson, the former CEO of General Motors has cautioned that Apple would be trying to “cough up a hairball”. Global automaking is not a business for the faint of heart or someone who cannot sustain a long spell at a very high stakes game of poker.

Indeed, the past decades have confirmed that this industry banks on very patient capital – the kind we find in Japan, Korea and very prominently nowadays, China. The recent darling of investors in this sector, Tesla, recently found need to cool down euphoric expectations with Elon Musk’s assessment that it would not turn a profit until the end of this decade and, until then, would continue to incur significant capital costs. Akerson was merely elaborating what the American humourist, Erma Bombeck so succinctly stated: “The grass is always greener over the septic tank.”

Nor will the incumbents make it easy. As anyone who has used a BMW i3 will attest, these new breeds of cars demonstrate their rapid adoption of electric drive and connectivity technologies even as they integrate with new business models.

And last but not least, there is the spectre of product durability and the risks of liability and recalls. Last year in the US, where 16 million vehicles are sold in a good year, the number of vehicles recalled was in excess of 64 million. The auto and electronics industries have often found themselves at very different ends of the product obsolescence scale.

The average car in the US last year was 11.4 years old and products are designed to have a useful life of 10-15 years at least. This means that the simple USB socket that is designed for 2000 inserts for computers are typically required to perform for over 10,000 inserts when in a car. A simple, yet realistic extrapolation of specifications would result in a USB socket that costs over $3 for auto applications instead of 30 cents!

Room for disruption

Yet it would be unfair to portray the aspirants at Google and Apple as naïve. If they jump into the fray, they will surely add to the genetic pool of technology and technologists, all aiming to make auto-mobility more comfortable, safe and efficient.

As far back as 1985, I recall taking a flight into the small town of Starkville, Mississippi. At the boundary of that tiny airfield, from a ramshackle shed, there came the ear-splitting roar of an aircraft jet engine at full throttle. As a pilot, I was curious as to what was going on in this backwater of aviation technology. I was told that there were a bunch of engineers from Honda who were dabbling in jet engines as a hobby.

Two years ago, Honda announced the first flight of the HondaJet business jet – one that, as its maiden venture in aviation, has broken several established benchmarks in the aircraft industry.

And their home-cooked engine was good enough to warrant the mighty GE to beat a path to Honda’s door to seek to jointly produce that jet engine of Honda design for commercial applications. I can imagine how the great Soichiro Honda would have egged on Apple: “Bring it on. This world has room for disruptors.”

The writer is an auto industry leader who is working on a book on Future Mobility.

Published on February 19, 2015
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