An Apple car: What are the odds, really?
Rumors that Apple (AAPL) might be developing a self-driving car have heated up. The company is said to be talking to carmaking experts and suppliers about a long-range plan to create a self-driving electric vehicle.
According to some of the reports, a vehicle will look like a minivan and be designed in-house. But absent yet-to-be-offered (and unlikely) confirmation from Apple, parsing the reports -- whether Apple is taking such a sharp strategic shift or the reports are significantly off base -- requires a look at the company's situation.
Apple just hit a revenue record and new high in profits. Growth has been beyond what watchers had expected. But the growth was due to the success of the iPhone in China. The success is undeniable, but nothing else that Apple has done comes close to the massive popularity and profitability of the device. Mac sales are strong but nowhere near this level, while iPad unit sales continue to trend downward.
The iPhone has two factors that enable its soaring performance. One is that many wireless carriers provide some degree of subsidy up front. Consumers do eventually pay the whole cost through higher monthly service charges, but they don't notice that the real price for their iPhone 6 is almost $690. The other is the propensity for people to get a new smartphone every two years when they're eligible for the next subsidy.
In other words, built within Apple's success is a serious weakness. Too much depends on the iPhone. The company needs to diversify, easing its reliance on one product.
Marry that with the understanding that Apple, unlike a Google (GOOG) or Microsoft (MSFT), has been focused on a narrow area and number of products. With the introduction of the first iPod, it made itself into a consumer-electronics company.
That category doesn't need to mean only handheld devices. Apple has been active in the home, whether through Apple TV -- a product that has never hit the comparative big time -- or announced support for home automation. One area other than home and work where people use electronics is in a car. Apple first publicly showed an interest in automobiles through a patent filing five years ago. Apple CarPlay debuted in March 2014.
Even beyond entertainment, modern cars carry lots of electronics. Does that mean Apple would design an entire vehicle? Possibly, but the shift in its business model would be staggering. The engineering effort in creating a new vehicle is massive, with a scale beyond anything Apple has tried.
Plus, regulatory requirements are far more extensive. Customer service and repair are orders of magnitude more complex than what consumers get at an Apple Genius Bar in one of the company's stores.
Not to say that such a shift is impossible. From its incorporation in 2003, Tesla Motors (TSLA) clearly established itself as a viable and, ultimately, profitable company. Apple certainly has the money to create a design, but for broad acceptance it would likely need service centers for repairs, showrooms for sales and compliance with existing recharging stations to make the cars practical.
Perhaps Apple is looking to build a car from the tires up. Or maybe it's seeking a middle ground in an all-or-nothing discussion. Apple might be readying a series of electronics, including self-driving, collision detection, cameras and entertainment, which could be delivered as a package to carmakers to create their own Apple-branded versions.
Or Apple might, indeed, be planning to develop and sell a complete car. In that case, don't expect anything to happen for years. Look how long it took to simply introduce the Apple Watch, and even that isn't yet shipping.
And even if it become a carmaker, other Apple products have shown that a runaway hit capable of totally changing an industry is anything but guaranteed.