The Entrant’s Guide to The Automobile Industry

Like a siren, it calls.

The Auto Industry is significant. With gross revenues of over $2 trillion, production of over 66 million vehicles and growing[1] it seems to be a big, juicy target. It employs 9 million people directly and 50 million indirectly and politically it must rank among the top three industries worthy of government subsidy (or interference). Indeed, in many countries–the US included–government interference makes it practically impossible for a producer to go out of business, no matter how poorly it’s managed or how untenable the market conditions.

But this might be the tell-tale sign that danger lurks. Theory suggests that incumbents going out of business is an essential indicator of industry health. Without their exit, entrants are never allowed to bring disruptive ideas to bear and innovation simply stops. Is this interference with mortality the only indication of entrant obstacles? Are things about to change? Is there pressure for innovation? Can we spot other indications of a crisis in this industry?

Taking the US as a proxy, here is a graph of the number of new car firm entries (and exits):

Screen Shot 2015-02-23 at 6.58.54 AM

The total number of firms[2] that entered the US market is 1,556. The blue line graph shows the entries and the orange line shows the exits. This sounds impressive, but note that the year when the peak of entries took place was 1914, exactly 100 years ago.

1914 was also the year when penetration of the market first reached 10% and the rapid slope of adoption was joined. You can follow this adoption rate as the red line in the graph above[3][4]

The first analytical task for the entrant today is therefore to ask why there have been so few others succeeding in the last century. In the last half-century 14 tried and all failed.

One clue is the third set of data plotted above: production figures. The blue area represents the production total for the industry on a yearly basis.[5]. Note that all three data sets have some relationships to each other: Production growth is dependent on new demand growth and that on a household basis demand ceased growing in 1990. Production and penetration accelerated when entries ended. Given the economies of scale in manufacturing, a consolidation occurred and barriers to entry exploded when volumes became significant.

This leads the casual observer to conclude that production is the predominant consideration for participants and that the entire industry revolves around this measure.

Indeed, production is everything. Capacity utilization is the first priority for an auto manufacturer. Capacity is why firms are not allowed to die and entrants are not allowed to enter.

But you don’t need the data to tell you this. There are other clues. I will summarize these observations in the following “ten commandments” for the industry:

  1. It’s easier[6] to design and build a Ferrari than a Ford. At its logical extrapolation of this rule one can observe that a Formula One team is a trifling hobby compared to the effort needed to build the shabbiest of hatchbacks.
  2. Low-end disruption happened early in the adoption curve. The very first cars were luxuries, but the Model T from Ford set up the Ford production system as a template for all and it was a low-end disruption. It happened 100 years ago. The Volkswagen Beetle and the Toyota Tercel were also low-end and they built non-US concentrations for production in the 60s and 70s. Same can be said for Mini, Fiat, Renault and Citroen. More recently Korean and Chinese entrants have appeared but they have not been disruptive.
  3. Almost all meaningful innovation occurs in the production system (not the vehicle). The improvements in vehicles are many but they have not been meaningful in the sense of shifting any of the power in the industry. Certainly not to new companies. The production system innovations of Ford, GM and Toyota  allowed them to establish what is to date an unassailable power base of production. If you want to find the next “big thing” in automobiles, look for a new production system.
  4. To understand how cars will or won’t change, study roads. There were roads before cars, but not paved and not for going far. Road construction and the deep understanding of safety, capacity and economic impact took 50 years between 1920 and 1970 in the US.[7] The cars pay for the roads and, as a result, they pay for the logistic system that allowed all forms of powerful businesses to emerge.  Walmart, McDonalds and Amazon and the entire retail, food and agriculture sectors owe their existence to the roads that car adoption paid for. Furthermore, the real-estate and entire living structure of many countries depends on roads. If you want to change the car you have to also understand how the roads need to change.[8]
  5. There has never been a disruption based on drivetrain innovation. Everything to date has been sustaining. Since 1886, the internal combustion engine has been dominant. Even though there have been diesel, natural gas, all-wheel drive, front wheel drive and electric drive, none of these innovations have changed who controls the profits in the industry. Hydrogen fuel cells won’t either. The reason is simple: incumbents can easily adopt/buy any improvement/innovation as it sustains their production-oriented profit formula. Entrants with drivetrain innovation can’t build a business model moat around the idea without a production base.
  6. China is the largest producing (and consuming) nation. The global center of production shifted over the years and tends to follow consumption. As a new middle class emerges, the fact that China is leading now should not be surprising. As each new producing center was built, it created an opportunity for local entrants, however they did not displace the incumbents rooted in other markets. This is mainly because they were protected and they were protected because of political considerations including jobs, taxes (roads), etc.
  7. Almost all car companies own each other. There is a vast cross-ownership network and a disinterest in independence. This is again due to production-led thinking. The spreading of over-capacity or under-capacity risk leads firms to disregard product or market considerations and enter into joint ventures and partial acquisitions. Portions of manufacturers are bought and sold by competitors almost as regularly as they are bailed out by governments. Competition is therefore perverted if not prevented.
  8. For most motorists, congestion is a bigger problem than any deficiency in the vehicle. We think people want better cars, but they don’t. Cars stopped getting “better” and started becoming worse when congestion became common and congestion became common when saturation was reached. We can’t build more roads (see Commandment 4) and as populations grow, the traffic becomes unbearable. The vehicle’s role switches from freeing to constraining. The industry is adding cupholders to alleviate the problem.
  9. Contract manufacturing is nearly non-existent. Unlike other industries which modularized long before saturation, automobile manufacturing is largely inter-dependent. You can’t buy your chassis from one maker, the body from another and fit the electronics, user interface and engine from a few others. All available configurations come from one brand. This is symptomatic of the production system leading to innovation insufficiency.
  10. It’s easier to make a car go fast than to make it go far. This rule is partly corollary to the first rule (Ferrari vs. Ford) but it is also alluding to fuel and energy considerations. Fuel has always been seen as a handicap for the industry. Crises of availability have been around since the 20’s. Somehow demand has led to supply but there are new, unpriced costs to bear. For the industry to continue it needs to solve its own range problem.

All these topics and much more have been discussed in Asymcar, the podcast for those interested in entering the automobile industry.

As technology companies listen to the siren’s song they should contemplate the basis of survival in the industry. Whether your approach and innovation sustains the hegemony or changes it will largely depend on your business model being asymmetric to the incumbent. Determining what is and isn’t symmetric should be the first step in your analysis.

  1. The industry continues to grow, registering a 30 percent increase over the past decade, mainly due to Asia and China in particular []
  2. counted as brands []
  3. The line is on a log graph and shows the P/(1-P) where P is the penetration of households []
  4. Note that all line graphs have the same x-axis but have different y-axes. []
  5. The graph is split into cars and trucks. You can plainly see the recessions and the patterns of war and peace []
  6. read: cheaper []
  7. Thanks to Steve Crandall for many of these insights. He further notes via Twitter that ~1.5% of the US land mass is paved for transportation []
  8. Hint: for cars to improve through the reduction in the need to be driven, an understanding of their environment–roads–is mandatory. This is an information problem mainly but it’s also a regulatory and tax problem. []
  • Casimir Artmann

    What about making better use of the time spent in a car? If the car is driving by itself, your can do some other things during the ride. Think of flexibel transportation instead of driving a car.


    • rational2

      Like listening to Critical Path and Asymcar podcasts 🙂

  • peter

    Excellent analysis, the focus on the industry structure is absolutely essential for those seeking to compete in the car industry.
    I agree that designing a car is the easy part, but it counts for nothing if you cannot develop an innovative business model / manufacturing model that helps you survive in an inhospitable industry.
    Also, if you want to come up with an innovative approach to cars, you really need to take a step back and start thinking about mobility in general and how you can meet (or avoid) that need for mobility.

  • tmay

    Horace, you called this early; the Automotive Industry is the next disruption.

    As for Apple, what does it bring to the table:

    1) Retail presence, some that might morph into showrooms, and better, charging stations, lots of charging stations. Lots of State/Nation Legislative lobbying will have to happen to make that work, but Elon will be happy to help!

    2) One of largest if not largest private buyers of renewable power and infrastructure. Fixed priced power for length of Apple Care/Apple Lease on your Apple electric car? If Apple can work with banks, they surely can work with Utility companies.

    3) An impeccable design and user experience, but I’d expect a city car first, so no competition to the Tesla 85D.

    4) The Apple Brand.

    The real question would be whether Apple can use its supply chain expertise and piles of money to efficiently build a car. I would think yes.

    • David Leppik

      Apple’s retail presence is mainly urban or deep inside shopping malls: locations with a lot of foot traffic. To showcase a car, you need room for a car. To provide test drives, you need a driveway. Apple stores have neither.

      • Rich

        This is Tesla’s sales model and they have already made an imprint with the shopping mall model.

    • Mark

      >> Horace, you called this early; the Automotive Industry is the next disruption.

      I’m a little clueless here, but it seems to me Horace is throwing cold water on the idea that disruption will come anytime soon in autos. I’m skeptical myself of Apple’s intention to enter to enter auto production even in five years no matter what they’re doing now. I don’t doubt that they have people working on it, but no way they or anyone can know they’ll be able to deliver a disruptive product in five years.

      If the nature of driving and what we expect of cars changes, as it would have to, then I guess all bets are off in theory. We were reading about the imminent arrival of flat-screen TVs in futuristic magazines for 30 years before they happened, and it is by no means clear that anyone even wants a self-driving car. Everyone would like to see one work, but that doesn’t mean anyone would want to buy one to use even if the massive hurdles to its production and use were surmounted in any case. It seems to me Horace is making a case for *not* considering autos an industry ripe for disruption. Not that it couldn’t happen, but it certainly can’t be predicted in an industry where people average non-techies actually love the current products and how they work. This wasn’t true in any other area when Apple introduced their product categories. IBM PC, Treo, iPod competitors (can’t even remember names here), Google Glass, etc.

      You know where disruption really is needed most? Housing. Housing is the industry that we most desperately need to be disrupted. There has got to be a better way than pounding nails through boards and plaster and sheetrock, at least in the US. Or maybe it already has and no one wants to live in modulars.

      • rational2

        There is huge overcapacity in living space. Not number of houses, but unused living space in each home. I suppose airbnb is one way to tackle that.

  • Emilio Orione

    Let’s think innovation will be a self driving car, together with drive train innovation (electric).
    Owning a self driving car is like having a car and a personal driver, what you aspect is that the car will where you want it when you want it, but it will not be a uber like service, that’s another story.
    It can not be done everywhere due to software limitations, it will need smart roads and more controlled situation (and car communication network too), otherwise a human like intelligence is required and we are not at that level, nowhere near.

    So a self driving car will initially drive by herself in limited and controlled areas, like parkings, dual carriage motorway, highways and slowly moving in more areas while roads improve. It will also need recharging stations, in places where you can spend 15/20 minutes waiting for the recharge.

    • r00fus

      Not sure why you split out self-driving cars and Uber.

      The real game changer would be a car-as-a-service that either responds quickly to your requests (a la Uber/Lyft) or even further, speculatively makes itself more ready when it expects you might ring (a la Nest, using personal and aggregated data analysis).

      People likely to pay handsomely for this kind of service. Imagine being able to ignore insurance, car payments and maintenance and even the exhausting driving bit.

      • Emilio Orione

        I agree an automated mobility service will be disruptive for the automotive industry and will be a success and perhaps in future will the predominant form of mobility but for many years still owning a car will be the way to mobility.
        So if you are going to make a car now, not in the future but now, your car will be made for owners or for service?
        Because I see very different cars for the very different use cases. Perhaps models will converge when the service will be predominant but for a while the two use cases will require different solutions, like a taxi is different and has different requirements from your car.

      • r00fus


        If I am going to disrupt an industry, I would do it in a way that a) doesn’t try to meet 100% of current needs – meets a profitable niche b) aims for the things that delight the customer (i.e., exponential on Kano model) and c) the incumbents can’t simply co-opt without disrupting their own business model.

        An instructive example is multi-touch on the original iPhone – no one absolutely needs this to make calls, send texts or browse images or the web. It just makes a lot of the above more delightful. It is now considered essential and phones that don’t deliver are considered substandard. The (original) iPhone did not have 3G, did not have MMS, or other stuff that were considered critical at the time. It sold like hotcakes.

      • Emilio Orione

        Multitouch was not the disruptive power of the iphone, it was the technology that was chosen to enable to effectively use a pocket computer

  • stefnagel

    Terrific analysis. Notes:
    * It’s worth listening to John Siracusa’s take on Tesla, on the recent ATP podcast.
    * The “roads” and “congestion” notes above suggest a hyperdisruption: We abandon cars, we work at home or home at work, and we leave it all to planes, trains, and ubermobiles.

    • stefnagel

      BTW, if you want disruption, take a look at this local initiative. Unpaid reck.

      • pretendpower

        Seems kind of odd. It’s just an electric vehicle where you pretend you’re helping out by riding an exercise bike at the same time and generating a small amount of power.

      • stefnagel

        If I read it right, the idea is to create a big enough vehicle to be seen and safe on city streets, enclosed for Minneapolis winters, useful on off street city trails, and with range enough for a day’s travel or commute. But I think it’s for bikers, not sitters. Just given the vehicle’s size and components, without pedaling, the booster motor’s range is limited. I’m guessing.

  • ankushnarula

    How do idle capacity, the sharing economy, delivery services, and smarter/cheaper logistics software factor into this equation? Buying a car for the average consumer (particularly in dense population centers) is becoming less and less compelling as Uber, Zipcar, Zimride, Autolib, Amazon Prime, FedEx, UPS, Seamless, Eat24, Instacart, FreshDirect, etc are providing transport as a transactional service. And, as highly autonomous intelligent self-driving fleets are deployed, we will see more interesting innovation, competition, increased efficiency, reduced traffic, and of course an ongoing reduction in the cost per transaction-mile.

    • GlennC777

      One could argue that most of the services you mention really rely on economic stratification and are therefore no real solution to the problem of resource-sharing. You are simply buying other peoples’ time. The innovation is merely in the existence of platforms that allow peoples’ time to be quantized and sold efficiently.

      The practical implication is that, rather than the utopian interpretation in which everybody can benefit equally from the sharing of resources, the trend may actually be towards increased economic separation and dependency.

      • ankushnarula

        Yes – it’s the quantization of other people’s time – but also a quantization of capital-intensive resources and processes. This lowered bar of entry/access allows the consumer to re-allocate capital as they see fit.

        And to your second point – I hadn’t considered any ideological ramifications of a larger sharing culture. Are you suggesting that there will be an increased aggregation of capital in fewer hands when you say “economic stratification/separation”?

      • aardman

        There is already an increased concentration of capital and economic stratification. The sharing economy can just as easily be seen as a market response to people trying to retain a semblance of the services and conveniences that are fast becoming unaffordable for them.

      • aardman

        I agree with you. We cannot contemplate this ‘sharing economy’ without taking into account the backdrop of a society that is bifurcating into a segment that owns valuable capital (including human capital) and a much larger immiserising segment that sells the labor needed to produce the enormous amounts of goods and services that the other segment purchases.

    • aardman

      I believe that as long as people can afford it, private vehicle ownership will never disappear or fall to insignificant numbers. Do not underestimate convenience. There are people who take public transit to work every day but still own a private vehicle which they use mostly on weekends. Zipcar type services do not work in suburban settings where you have to walk to pick up the car. As long as people can afford it, they will want the freedom and convenience to take quick last minute trips to the supermarket to pick up a needed ingredient, or take a spur-of-the-moment drive on a beautiful spring day.

      I’m not even factoring in the status-and-vanity function (i.e. sexual signaling) that cars fulfill. If this were not a significant motivation for car ownership, we’d all be driving drab, utilitarian vehicles that cost twelve thousand dollars. We obviously aren’t.

      • stefnagel

        Back to the Cadillac ad?

      • Eric Gen

        As someone who owns a secondary pickup truck that I’ve put 6k miles on in 14 years, I fully agree with you. When I sold my previous secondary vehicle, I was hoping to just rent a U-Haul truck for $20/day when I needed one, but they wouldn’t let you reserve them in advance at that price, so you could only get one when you needed one if they happened to have one on the lot right then.

        Next, I tried renting Home Depot trucks by the hour, and still got caught with the ‘availability’ issue. When you have very limited time to do the things that require a truck, the ‘availability’ issue is critical to being able to accomplish things in a reasonable timeframe.

        I think my situation carries over to your example of people on weekends: they only have the weekend to do all of those things they want/need to do. Not having control of the ‘availability’ issue would significantly impact their use of the available time.

  • berult

    Apple is, dynamically, one of the largest and the most influential enterprise in the world. A giant body at rest, it is not. Apple’s metabolism behaves still, as a developing infant’s does, …in a start-up mode. It inhales, it exhales, it ingests, it digests, it excretes, it exchanges, it expands in volume, it expends energy… And all the while, it grows its knowledge-discriminating capacity. Development at its most critically efficient. A craving for life sits on it.

    And it’s at the forefront of mobile communication, AI, UI, UX, energy, processes, adaptability engineering, trans-boundary operability, operational modes and human resources optimization,… Always cutting edge, always proactive in its retroactive and hindsight decision-making process, coherent, increasingly self-aware of the social fabric of itself as a sentient persona…and of its mission statement…

    Now, someone, tell me…

    Were I the breathing entity I have just described, and in a hope-transferable way I am, wouldn’t my instinct push my sparking neurons to reimagine these damned legacy wheelbarrows…and the pitiful “années folles” networks that support this miserable harking lot…, and ponder, wonder over them through my own, carried-over, metabolic way…
    ..just as a healthy, resourceful child, at home…at home…, or at home in a kindergarten would ?

    • katherine anderson

      My long dreamed-of legacy wheelbarrow falls somewhere between an Airstream Sport (16 ft long) and a Fiat Doblo, a mobile computing device that not only carries its users and cargo, but also serves as a multi-use space designed for living … an office, playroom, tv room/reading space, overnight camper, even a small salon … imagine the open beauty of this Apple designed interior landscape, with lots of windows offering generous views, while at the same time providing a feeling of a safe and protected, peaceful nesting place … finally women would have a vehicle, that in its own adaptable metabolic way, we could truly enjoy.

      Oh, and not by chance, it needs to be wheelchair accessible from the back and two sides, with a floor that lowers to curb level allowing for ease of unassisted access.

  • GlennC777

    What a great post. It’s fascinating to contemplate what opportunities Apple sees in the car industry, largely because they do have the resources to do almost anything they want, but also historically the restraint to avoid stumbling half-blind into an industry with notoriously difficult economics.

    The question I see most people asking about Apple is how they could improve the car. I think that is the wrong question to ask.

    Horace’s point about the lack of competition in the industry is interesting, because from the customer perspective, there appears to be tremendous competition. However, there is also an almost-suffocating conservatism. The conservatism probably results from the economic reality that production capacity is so expensive that to make a serious mistake could be catastrophic for almost any carmaker. The result is that carmakers appear to compete furiously, but they do so within very narrow constraints. Cars come in almost every size, shape and powertrain architecture imaginable, but all are built using very similar production methods, materials and design approaches. Any attempt at a serious transformation would be too great a risk, and would represent too great an expense in obsoleting existing production infrastructure.

    Does Apple have an answer to this? To me, that is the question that should be asked.

    • yaalanhoo

      I would not be surprised if whatever they come up with is targeted to developing markets (e.g. China) rather than the U.S. The U.S. market seems strangled by regulation which is something Horace has pointed out restricts the ability of disruptions to compete asymmetrically. I don’t know much of what China’s regulatory posture is on cars, but I do know they have several huge cities. So maybe the production process changes to something along the lines of iStream, the risk equation changes by making use of currently underutilized capacity in Chinese factories, and the market enlarges by selling a smaller, lighter, more nimble, cheaper vehicle to city dwelling Chinese.

      • David Leppik

        Apple has always developed US-first, because they are based in California and like to enter markets where they (management and designers) want to personally use an Apple product. One of the hardest things in design is to make something great that you can’t personally use. If you don’t use it, you don’t know the right questions to ask, and you get trampled by designers with a visceral understanding of the use cases.

    • aardman

      I just go by the belief that Apple would seriously contemplate entering the auto business if only if they believe they will bring something new that will totally revolutionize the industry.

      I also go by the further belief, that most of us have no idea what this new thing might be. If we did, we’d be working at Apple not posting our musings online.

      • stefnagel

        One word: asphalt.

  • neutrino23

    I’ve been thinking that if Apple really gets into building cars they won’t just build another car, one that’s prettier and nicer. They will somehow turn the industry on its head.

    Just as an example, what if they only sold self driving cars to fleet owners? They could start only in large, metropolitan areas like LA and SF. There would no longer be model years. The car could be modular so that as parts wore out they’d be replaced. They would change an electric motor to a newer version like we now change worn out tires.

    A fleet owner is in a much better position to manage batteries. When a roving vehicle needs to be charged it heads back to the depot and the battery pack is swapped out. This could open the door to things like aluminum-air batteries. These are not rechargeable but they can be reloaded and the previous contents recycled and they carry more energy than rechargeable batteries. Not something you could sell easily to consumers but easy for a fleet manager to handle.

    The interior could be reconfigurable like airplane interiors are. Also, if the car is used as a taxi people are much less critical of the design. They might not buy a small van but they don’t mind riding one to the airport.

    All the interior electronics would be made by Apple, of course. You could summon a car with your iPhone (12?) and pay with Apple Pay. Apple would get a cut of the fee, worked out in a contract with the fleet operator.

    For long commutes you could easily join a pool. Software would figure out a route to pick up the nearest four or five riders. You could ride to work in relative comfort with WiFi. Putting four or five people in a vehicle instead of one would cut down on congestion. You could fit four to six business-class seats in a vehicle the size of a large automobile.

    To move a some boxes you could summon up a vehicle configured with some cargo space instead of seats.

    To go shopping in downtown San Francisco the car would drop you off near Union Square and vanish. No worries about parking. When you want to go home you summon another one.

    In the process there are no dealers, no year to year model changes, individual financing, insurance, etc. Everyone can remodel their garage as one more room in the house, we can tear out the driveway and plant tomatoes. Gas stations will disappear in metropolitan areas.

    I don’t know if any of this will come to pass, but these are some examples of how Apple could really change the industry.

    • Tatil_S

      >”Also, if the car is used as a taxi people are much less critical of the
      > design.”
      Design is one of Apple’s strengths. Why would it go into an area where that strength would be ignored by the customers?

      • neutrino23

        Sorry, that was too terse. My point was that this is an opportunity to break away from the pack. When selling to individuals body styling is important, not so much for fleet vehicles. Look at the iconic London taxi as an example. Design will be important but it will change. People will feel differently about a temporary use vehicle than an owned vehicle. It may be an advantage to have these very nicely appointed on the interior.

  • Christian Peel

    It’s possible that the reason Apple has been hiring automotive engineers is so they can do research on a possible acquisition of Tesla.

    • Horace Dediu

      No, it’s not.

      • Christian Peel

        Do you have insider information? Or if it’s obvious to you, could you explain?

      • Amit Udeshi

        If Apple wanted help for this, they would hire M&A inventment bankers, not hire a bunch of engineer inventors who have no financial modeling background. I agree with Horace on this one.

      • Christian Peel

        So the only info that Apple would want before a purchase of Tesla would be that which they could get from bankers? You don’t think they would want input from senior engineers on technical and business facets of the automotive industry and Tesla in particular? I didn’t follow the hires, but my impression was that they were senior and would be valued for more than technical ‘invention’. I don’t think it’s Apple’s model to only think financial modeling.

      • TomCF

        M&A is a lot more than just getting bankers in the room and haggling on price.

      • ericinaustin

        Not really.

    • rational2

      Tesla is expensive, with 10 years worth of growth priced in. Apple has money, but that doesn’t mean they will be throwing it around (unless they hire Ballmer to be their CEOs; he will buy 5 car companies in a week 🙂 )

    • aardman

      Let’s imagine the pitch on that when Apple tries to hire a gearhead:

      We want you to join Apple.
      Great, you want me to help design a new car?
      No, we want you to help evaluate Tesla’s technology as a potential acquisition.

      Really now, do you think they can lure the best engineers (Apple’s famous A-players) with that pitch?

      • marcoselmalo

        Haha! They could tell an engineer they’re trying to poach from Tesla, “Someday, hopefully, you will work at Tesla.”

    • DarwinPhish

      You got it backwards — they would buy the company in order to get all the engineering talent.

  • TomCF

    I find the predictions of Apple making self-driving cars odd. Apple doesn’t invent new technology. They take the best technology has to offer and make as high quality a product as possible when no one else dares.

    The first iPod used a regular hard drive, a capacitive touch wheel, and a simple LCD screen. The first iPhone took the best screen available, the best glass, and as big an SSD as they could get people to buy. None of the technology was bleeding edge. All the parts were proven to work. Some of the “magic” is in putting the pieces together thoughtfully, and at scale. (Obviously more than that, but that’s most of Horace’s blog…)

    Self-driving technology doesn’t exist. You can’t take a Google car into an arbitrary location with arbitrary weather and arbitrary demands.

    So any thought experiment of an Apple car would include only proven technology that works right now (though may be costly options in the current industry, e.g. driving assistance).

    • oldncrabby

      Just to be picky: the *first* iPod had a mechanical scrollwheel.

      • TomCF

        Doh. You’re right. Ok, *my* first iPod. 🙂

    • neutrino23

      Self driving technology does exist, it’s just not perfect.

      Self driving cars don’t have to be able to go anywhere in the world to be successful. If you restricted them to freeways and to city streets in major metropolitan areas you have covered the majority of the population. The rest can come later as the technology develops.

      We don’t know when self driving cars will be street legal but they clearly are on the horizon and Apple does seem good at entering new markets. The iPad was imagined long ago and only entered production when the technology was ready.

      • Walt French

        Note that it shares those features with fusion power.

      • TomCF

        Way more concise than how I was going to respond.

      • neutrino23

        Cold Fusion (hot or cold) has yet to be demonstrated. Self Driving does work in limited situations and the range of applicability is expanding. This is an engineering problem, not science. Again, self driving doesn’t have to work everywhere to be successful. If it is restricted to freeways and select city roads that is a good start.

      • marcoselmalo

        It’s been demonstrated, it just hasn’t been demonstrated as a practical way to generate energy in a way we can use. Either it takes more energy than you can get out of it, or it is uncontrolled, destructive energy.

        If it were merely an engineering problem, it would have been solved by now. The engineers are waiting for a scientific breakthrough.

  • David Leppik

    I think it’s instructive to look at Apple TV. Despite years of rumors to the contrary, Apple still sells just the set-top box, not the display itself. This despite the fact that they have access to the best display technology.

    I think lifecycle is a major issue here. People don’t want to drop thousands of dollars on a big-screen TV that will be obsolete in a few years. Nor does Apple want to support a TV that most people will own for 5-10 years.

    Apple has three TV products: Apple TV, iPhone, and iPad. Two of these replace the TV entirely, but not under all circumstances. The other extends the reach of the others to include traditional TV viewing.

    You can see Apple TV as a device that goes after TV where the profit margin is (delivering entertainment), while avoiding the low-margin part of the business (displaying entertainment.)

    Since people tend to own cars for 4+ years, and support (in the form of product recalls) persist for 10+ years, there are a few options. One, Apple will stick to the luxury end of the business. This would make this a niche product for Apple– which would limit their volume significantly. Two, Apple will find a way to sell low-end luxury vehicles with high-end luxury value. This is still ultimately a low-volume play for Apple. Three, Apple will provide software and services for cars (the equivalent of Apple TV) without selling an actual car.

    Ultimately, I think the question is how low-end (i.e. high-volume) a car Apple can make that Jony Ive would be proud of– and which would still provide decent sales margins.

    I don’t think they’ll go the self-driving taxi route; Americans– especially those who love cars– like to own their cars. They treat their cars as a mobile room in their house– complete with closets that permanently store their stuff. Nor do I think they’ll sell $30,000 worth of metal and glass and add a 40% margin. The only scenario that makes sense at this point is automotive peripherals.

  • Walt French

    @Horace Dediu wrote, “The industry is adding cupholders to alleviate the problem.”

    Which I just had to call out, just for the humor of it. But it belies a terribly important point: A better iPhone interface, or a collision avoidance system on cars or a whole slew of the innovations competitors are offering, not only is easily copied to sustain the incumbents; it also brings nothing that would allow Apple to pull its usual tricks.

    Jobs publicly stated that the iPhone was 5 years ahead of everybody else (about right). He brought out the iPod with obvious intentions not just of building a higher-quality MP3 player, but one designed from the ground up to create a new ecosystem around music, one that Apple would dominate for a decade or more. The iPad as Apple’s answer to the netbook that everybody else wanted Apple to build; still, according to Cook, early in its evolution.

    This is not just an interesting regularity in Apple’s new product efforts; I think it’s intrinsic to how they sink years of work into products before releasing them; part of that work is to make sure that they will recoup their R&D because fast followers will be limited in what they can do.

    Here’s my takeaway: Apple both won’t and can’t do anything really innovative (both inventive AND commercially significant) until & unless it addresses consumers’ problems that competitors haven’t, in a way that competitors won’t because they can’t because they’re locked to some disrupted approach.

    As an armchair strategist, my best answer would be for Apple to magically get governments to allocate dedicated lanes for many long-distance or heavy-use routes. These lanes would have sufficient beacon and other tech that cars could slipstream safely in them, while leaving individual drivers still responsible for their cars; this seems like a good blend of Americans’ insistence on independence and autonomy, while still allowing personal possessions to leverage state expenditures.

    Still, I have a hard time seeing how this is a market that Apple could own for 10 years, which seems the minimum time that they’d need to get payback. A quandary!

    • Franny

      I think the problem is that everyone hears “car” and assumes that it will take the form of a car you already have, or at best a “self-driving” car like they saw in the movies. It’s true that lots of other companies seem to be trying to do this already, and it’s not clear what Apple could uniquely do to jump into the lead, much less maintain that lead for any period of time.

      More likely, to me, is that Apple is working on the more general issue of transportation.

      A bus? A train? A people-mover system, to make places like airports more efficient?

      The advantage of these is that Apple could dogfood them. They would be useful at Apple’s own campus. A new car would not — it’d still spend most of its time stuck in traffic around the bay.

      • Walt French

        Rail & bus systems are heavily subsidized in the US. At Wikipedia’s Farebox Recovery Ratio page, you’ll find that the CalTrains line that goes up the SF peninsula, gets just over half of the expenses from the fare box. (Newer data: almost 60%, thanks perhaps to the Apple/Google boom and highway congestion that came with it.)

        The highest North American system ratio was <80%. The London underground gets all the way to 91% but you can count systems that more than cover operating expenses on the fingers of your left hand.

        No mention in those stats about the capital costs. The value of the rights-of-way, which are huge in the dense urban areas where these operate, and sufficiently large in other areas that mass-transit is seldom considered. Adding in those costs: count “profitable” systems on the thumbs of your left foot.

        Apple or any other privately-owned transport system will NOT be subsidized the way that socially-owned systems universally are. If this is to be a normal capitalistic enterprise, it's unlikely to compete with public transit per se.

  • Walt French

    If I read the chart correctly, well over half the sales in 2012, the last year shown, were trucks. Gas prices rose substantially and rather steadily following their 2010 breakdown, so this wasn’t just a fuel cost story; construction has hardly come back, so it wasn’t a business choice, either.

    I think the car/truck ratio is co-integrated with the congestion that Horace aims at. Ponderous vehicles drive out the reason for having more compact, agile vehicles, as you don’t get to your destination any sooner, driving a Porsche at 40 mph is no more fun than driving an F150 at that same speed, and you’re less safe in a mixup between a behemoth and a smaller car.

    The higher the cost in hours to travel a given route — say, to commute between San Francisco and Mountain View — the more costly the trip in dollars for higher-income drivers, such as Apple’s customers. A Tesla can accelerate at almost 1.0g, but your commute time is not really shorter than what a truck costing one-third as much can deliver.

    • marcoselmalo

      I think it’s a mistake to make too much of the distinction between cars and trucks, since most of the trucks being sold to consumers function as cars most of the time. A pickup truck with seating for four is a car with extra cargo capacity, not a freightliner with extra seating capacity.

      • Walt French

        Yes, I’ve long seen that the best-selling US vehicle is a Ford pickup. They’re built for hauling cement bags & tools around construction sites or dirt bikes over dirt roads; they are misfits on your typical city street, or 4-lane urban freeway where (many times) most of their miles are logged.

        And yes, their substantially greater weight and height is both intimidating to smaller-car drivers and shifts the odds sharply in case of a crash. (An F-150, Silverado or Tundra weighs approx twice as much as a Fit or Prius C, over one ton more. Physics.)

        A sane response is for an individual to trade in his mini for a full-sized car, or join the truck crowd himself in especially truck-happy areas.

  • Cameron Bales

    I think that if Apple really is doing a car that the secret sauce is in the Production/Operations – the part that allowed Tim Cook to sell the iPad at $500 instead of the expected $1000. Others expect that Apple’s secret sauce is in the Software or the Hardware but that won’t be it in the car.

    It’s also interesting to imagine that it doesn’t get sold in the US anytime soon. Lots of other countries with lots of people with lower barriers to entry.

    If self driving is going to happen (please please please) then the secret sauce there is getting the insurance companies in-line. It’s not true today, but it is easy for me to imagine self driving cars to be safer for humans, and thus cheaper for insurance companies quite soon. This is another reason why if self driving is in the mix that starting outside the US makes sense.

    • rational2

      Hopefully the insurance industry is decimated due to less need for insurance. Slimy bastards just sit there and count the money as it rolls in.

  • Martin

    Since everyone (including me) are all over the place on this:

    Apple’s showcase products are all platforms, while their other product are all accessories and services. One advantage of a platform is that you can deliver value to the consumer after the initial purchase, so buyers have an aspirational sense of value that often exceeds the true value. “If I bought this, I could add these apps and solve these problems”, etc. There’s no way that Apple is going to introduce a car as an accessory, so it’s going to be a platform.

    Apple added a lot of value to mobile phones by making them platforms. While the traditional aspects of building cars is certainly important here, the value-add from Apple will be through building a platform that can be expanded through software and services later. Among that software/service is very likely to be aspects of automated driving. I would expect an Apple car to have a large number of sensors and whatnot to back those services into.

    A curious thing happens if you do get into an automated driving platform. With software running the show to optimize everything, aspects like power, acceleration, top speed all vanish. Once you automate something, your goal really becomes to deliver the minimally viable platform – as little power as is needed to achieve optimal results – mileage, meeting speed limits, etc. Once you do that, everything that defines cars now just goes away. Instead of making an interesting mechanical thing (because that’s how you sell cars now), you really want to make the least interesting and most reliable mechanical thing possible and the most interesting digital thing – and that really plays into Apple’s strengths.

    The other interesting thing with an autonomous vehicle is what is the UX? Sure, you’ll send your map destination to it from your phone, but that’s not sufficient. You’ll need that on the dash as well. What if you need to stop for lunch in the middle of your trip – how do you tell your car that? Voice control would probably be useful. With a fully location aware connected vehicle, what kinds of services make sense? Many of the same ones as on your phone, but probably others as well. If I have an EV and I need to charge on a trip, and that’ll take half an hour, what are the lunch options near that charging station? Toss all the expected services on top and open it up to 3rd parties so you don’t need some global partnership to run Spotify, the user can just add the app themselves, and off you go.

    And of course Apple will refine the hell out of the production process.

    Interesting times.

    • Mikhail

      I’m not yet convinced Apple will even (i.e., in the next 15-20 years) sell a car. I wonder if all of the (rumored!) car development isn’t just defense.

      First, on the off chance that Google (or anyone else) does actually make a consumer-ready self-driving car, Apple doesn’t want to be left out in the cold.

      Second, because Microsoft and others are putting their software platforms in cars, and Apple wants to be able to do the same.

      Third, since cars have the potential to be the new technology platform of the next decade (as smartphones were of the last decade, or PCs were before that), and they require such diverse skills that can be applied anywhere (i.e., if you can build an electric computerized car, and you have a top industrial design team, you can definitely build any kitchen appliance).

      I see it like MAD in the Cold War. Apple has no interest in getting in the car business. They just don’t want to be the only leading technology company that isn’t.

      • MADmad

        “I see it like MAD in the Cold War. Apple has no interest in getting in the car business. They just don’t want to be the only leading technology company that isn’t.”

        Have you seen them fall prey to this kind of thinking previously, or do you think this is the first time they’ve made this mistake?

    • marcoselmalo

      Keyword: software.

      • Martin

        Exactly. I think the ‘software is eating the world’ virus is ready to infect the auto market.

  • YF

    The sought disruption in the automobile industry is self-driving cars, assuming they can be realistically realized. It’s a Hard problem that can’t be easily duplicated and replicated and it is almost entirely a software problem – not a production problem. If properly realized, self driving cars pretty much solve the congestion problem by allowing denser, more efficient utilization of existing roads. Highway lane capacity increases dramatically and is governed by speed limit instead of the current, relatively low, constant capacity.

    Eliminating drivers will revolutionize the concept of many services and potentially the very concept of owning a car. From a driverless low cost Uber, to trucking to parcel delivery, to many more people not owning a car because you can treat all cars as interchangeable seats.

    Not needing a designated driver would itself be a mini revolution…

    • rational2

      The other disruption would be modularity and a simpler assembly line as well as a car that needs much less service over its lifetime. The electric cars are a step in this direction.

      • YF

        Agreed. Lower cost of maintenance for electric cars is a very important piece of the possible disruption.

      • Emilio Orione

        The high fuel cost has also something to do with the electric disruption.

    • marcoselmalo

      See Commandment #4. Self driving cars will be limited for quite some time, only useful in limited areas. Which is not to say that computer assisted driving won’t make incremental improvements, but self-driving cars will be no more disruptive than flying cars have been. It’s a fantasy at best, a blind alley at worst.

      • YF

        I largely agree that autonomous cars are still in the realm of fiction. However, some of the easier driving problems are in situations that could benefit the most. Particularly, freeway driving where congestion is especially problematic.

      • marcoselmalo

        So how do you envision this? Parking lots near major onramps, where the suburban commuter parks his personal car, then takes the self-driving car to his job? Wouldn’t public transit be better suited for this?

        Perhaps the suburban commuter uses public transit to get into town, then uses the self-driving car to run errands, get to work, etc. But wouldn’t a Segway or a bicycle be an equivalent and cheaper solution?

        Please understand that I don’t think the car-as-we-know is here to stay or that it’s model for transportation is sustainable. I just don’t think the self-driving car can or will be a significant disruptor.

        Speaking of Segway, remember when it was supposed to disrupt transportation? Whole cities were going to be redesigned to accommodate it. And that was a shipping product.

      • YF

        No, not at all. It’s not all or nothing proposition. You will have a driving car that is also capable of automated driving in special circumstances, e.g. freeway driving. You drive your car to the freeway and at some point transition the car to automated driving whereupon it enters the HOV-like automated-only driving lanes.

        It’s clear that governments have a huge incentive to create these automated-only lanes to alleviate, and possibly eliminate, congestion. In turn the automated-only lanes are a ‘killer’ feature from a commuter’s perspective.

        It’s like HOV, except it will actually work because lane capacity increases dramatically, too.

      • marcoselmalo

        OK, that does make some sense and makes me less skeptical of the concept. Thank you.

  • Mehere

    The point is, that Apple does not need to build a hugely disruptive innovation at all. They just need to build a nice product. If they are able to snap a little piece of the market just by their brand name, it will still be huge. That is how the iPhone started. Small by numbers, huge by impact. No autonomous driving, no new drivetrain required.

    BTW, the supply and engineering chain is already commoditized. The production is also available at low risk (see for example Magna Stayer Fabrication).

    It just needs to look slick and have nice infotainment. That’s it.

    • rational2

      If Apple simply goes for a niche by following the same formula used by the auto industry, it will barely eke out any profits. Tesla is already doing what you suggest Apple do, and I believe it (Tesla) wull be minting profits any time soon. I suspect Musk’s real goal behind Tesla is to get into battery mfg and disrupt the power generation/distribution companies. The cars, I believe, are a hobby for Tesla.

      Horace has lamented often that Tesla chose not to be disruptive. A big part of the reason is it would have been extremely hard for a lightly capitalized startup to take on several established global behemoths all at once (automakers, dealer networks, oil companies), so Tesla is limited to what it is doing. Another big reason, and this is my speculation, is Musk is much more interested in power generation/storage than in transportation so he didn’t need to fight any bigger a battle than he needs to. The Tesla image has been carefully groomed to focus attention on Elon Musk (and he deserves a great of that) and to give him resources and mindshare.

      Btw, I was a bit concerned when Musk said Tesla could reach Apples valuation in ten years. Reminded of that blowhard who in 1999 predicted his company would reach a trillion dollar market cap. That euphoria and some help from a certain analyst (who has since been banned from the securities industry but is around peddling a different product) helped that blowhard profit mightily at the expense of suckers who were left holding the bag. I have enormous respect for Elon Musk. Wish he didn’t say what he said about Teslas future valuation.

      • mehere

        Tesla is disruptive, yet not from a production but from an engineering approach. I highly doubt that this will scale well for them and I sure hope Apple will not follow that route (which I did not suggest anyhow). Ferrari is making a nice profit with 7400 cars per year. What is the problem with a profitable niche? The iPhone started as a niche product. Tesla not being able to pull profits from a niche does not mean there is none to be made.

        It does not need self driving cars nor any disruptive innovation on the drivetrain to make a nice Apple car and to make money with it. That was my point. It has to be a nice package with good design and it will sell. Look at the Apple Watch: how disruptive is it? It is still a nice product and I will get one once it hits market.

      • disdisruptive

        “Tesla is disruptive”

        Are they?

      • Mehere

        They have a fully integrated software solution for the whole vehicle and rely less on 1. tier suppliers like other OEMs.

        E.g. they can provide updates of driver assistance features after the vehicle is in the market. No other OEM can do that.

      • disdisruptive

        Seems novel, but not sure how that’s disruptive.

      • Horace Dediu

        Disruptive does not mean doing something no one else can do. It means it doing something no one would ever want to do and making a lot of money doing it.

      • Mehere

        Disruptive means changing the rules of the game and making lots of money out of it. For Tesla the thing that has disruptive potential is not the drivetrain (other OEMs have better or equal technology), but the engineering approach.

        Anyhow yes, you are right. Technically Tesla did not disrupt the industrie yet. I doubt Apple will do so either and I don’t think they need to. All pieces of the puzzle are there from engineering to supply chain to manufacturing. They only need a nice product to start with. There is no messianic disruption required from Apple to enter the business successfully. That’s it. Changing the rules of the game and making money is longer lasting because you control the game for some time. But you can also make money without doing so.

      • Emilio Orione

        Tesla is making many things in an unique way.
        The power unit of the car is electric, many incumbents choose to mount hybrid technology since roads are not yet fit to host electric only cars.
        So Tesla is also changing roads creating charge points.
        Tesla is selling directly to customers, no one else does.
        Tesla is selling a support service with direct control of the car and maintenance software updates.
        Tesla is producing both the cards and the energy source (batteries).
        Tesla (Munsks) is investing in energy production (solar panels).
        Tesla offers car maintenance at your home.

        There asymmetry in the investments in roads, direct sells, service and maintenance and in the choice to go battery only with performance cars.
        They are investing a new form of energy production and distribution and are creating the appliance (cars) that can use the new forms.
        Why producing the appliance? Couldn’t they just address existing energy consumer appliance like houses?
        Because the current energy users are already served and energy incumbent could react to the new way. This way they enter in a new space, road recharge for new electric energy users that are not currently served. The new customer base could give enough financial power to attack houses and sell house batteries united with solar or wind power producers.
        It is not a problem of self driving it is a problem of making batteries and sun and wind our new source of energy. Cars are just the easiest way to create the new energy market, others uses will come.

      • mehere

        Direct sales? Setting up charging infrastructure? Selling support services? All this does exist and you can get it from other OEMs as well. Maybe the marketing is better from Tesla, but there is nothing with the potential to disrupt. As mentioned before, the only thing others cannot copy Tesla is the engineering approach and the reason why others cannot copy it is, because it cannot scale. Mercedes with dozens of different models and configurations just cant operate this way.

        The comments section is full of people thinking about what features will do this (self driving, electric drivetrain revolution, …). I don’t think this Jesus Car will come to save the planet anytime soon.

        Horace does not think that the features make the difference, it is production. I would disagree here also: the industry is segmented with a low entry barrier already. Look outside of US, e.g. at China and you can see new brands and vehicles popping up and going down on a yearly basis (until the government stopped this). The point is: anyone can do this. E.g. Cherry and Israel Corp. started a complete new car brand “Qoros” (including engineering, production, sales) with a startup capital of “just” 1.5 Bn. Now think about what Apple could achieve with the war chest they have.

        BTW, even for the design aspect I do have concerns: design of cars (especially for premium brands like Mercedes, Audi, BMW) is core for selling cars for decades already. It is going to be interesting to see how this plays out. The only aspects that Apple could really innovate on is the UX of the infotainment system. If this is sufficient so sell a sustainable number of cars is to be seen.

      • Emilio Orione

        The services Tesla is running, like direct sales, at home support can be used to sell energy as well as cars.
        Tesla already sells energy at charging point, albeit for free, and use the money from cars to build more general services and a battery facility.
        Rumors says the new battery construction farms aims at more than battery for cars only, Tesla aims at battery for houses too.
        An house with solar panels (or vertical wind generator) and the right battery can have all the energy she needs without the grid. And your house will charge your car too.
        Tesla is building a brand, a car and an infrastructure for changing how energy is produced and sold. That’s disruptive for car only makers, they sell the car that does not pay its energy, for now with free Tesla recharge, in future with the renewable energy you use for your house.
        They are starting with the car to build the brand and the financial resources but unlike cars incumbents their aims is broader and include the energy needed by cars.

      • stefnagel

        OK. I need to think about that statement. Immediately I think of Apple contenting itself with a tiny fraction of the computer market for decades. Not a Wall Street honey bunch.

      • marcoselmalo

        The Keyword is Software. Disruptive or not, software eats everything. This is one of Tesla’s differntiators, less obvious than battery technology. It is also an Apple advantage.

        I suspect that rather than building and selling an entire car (still a posibility), Apple is focusing on car software, especially user interfaces. A secondary focus is batteries (battery tech also has consumer device applications).

      • DarwinPhish

        Only to dealerships.

      • Horace Dediu

        If you assert disruption you need to explain the asymmetry of competition. I refer to the definition of disruption as posted in the “Understanding Disruption” article in this blog.

      • Walt French

        I personally think it minor, but Tesla seems unique in having been able to bypass the dealer sales model.

        Dealer markups seem to account for roughly 15% of the original sale price (and maybe much more for higher-priced Marques) and comprise a large fraction of maintenance costs.

        As I said, a distinct part of the TCO and one that courts have forced the brands to keep going even during the bankruptcies of a decade ago.

      • Emilio Orione

        Take your Tesla delineated strategy, replace Tesla with Apple and change lightly capitalized with highly capitalized, that could be a very disruptive strategy for Apple and a good way to use 192 billions of cache, better than paying dividends I believe.
        So Apple won’t enter the car market but the energy creation and distribution market, cool.
        Tim Cook said, speaking about solar energy factories Apple is creating, that time for speaking is at an end, now is time for actions to prevent climate changes (and I would add disinnescate the risks fueled by petrodollars).
        What a better action than change our dependence from petrol for mobility and home energy needs?

      • Tom

        Tesla is still at the “iPhone 1” stage of the game. They’re still working to improve their technology. It’s got definite potential, but it’s still really only affordable to early adopters who are willing to pay a premium for that technology.

        I don’t believe that Tesla has failed (or succeeded) in being truly disruptive to the global automobile industry. It’s barely 10 years old. We simply don’t know yet. It’s easy to imagine futures where they stay a niche brand, and other futures where they keep moving down into lower price points and begin to take over the market.

        The iPhone 1 similarly had people who were absolutely certain it would succeed, and others who were just as certain it would fail. Before it’s had a few generations of design and technology evolution, nobody can say for sure.

      • rational2

        I understand it may take time for Tesla to grab huge market share. Unfortunately though, when time is measured in many years, even the auto industry can rise up to the challenge and embrace/suffocate the ideas. That’s what seems to be happening to electric cars now.

        With the iPhone, people saw its value instantly and Apple iterated rapidly to leave competition in the dust.

      • r00fus

        Disagree. I think the Roadster was the iPhone1. Model S is like the iPhone 3G (with App Store). It’s literally the best production car you can buy on the market, unless (like me) you really want a minivan (btw, Apple – I would kill for an electric minivan).

        The only thing missing is the downshift on pricing. I think the Tesla 3, by reducing the price to own will go mainstream.

      • Xavier Itzmann

        I object to your statement “to take on several established global behemoths all at once (automakers, dealer networks, oil companies)”.
        I fail to see how Tesla or any other electric car company has to “take on” “oil companies”. Has Tesla in any way been attacked, undermined, preempted or weakened by the oil companies?
        It just seems such an irrelevant, biased, throw-away comment, and unworthy of the comments section on this blog.

      • rational2

        I suppose you haven’t heard the Asymcar podcasts yet. This idea that well funded well connected global behemoths are working hard to maintain status quo and would do everything (legal of course) possible to crush newcomers is not absurd. lisyen to the podcasts and pay attention to all the political battles surrounding established industries and their upstart challengers.

      • marcoselmalo

        It’s likely that Big Oil doesn’t (yet) see Tesla as a threat. Let us hope they don’t until it is too late.

    • Horace Dediu

      Are you suggesting that the iPhone was just like all other phones at the time (2007) but nicer? In other words it was not in any way asymmetric to the prevailing basis of competition?

      • Mehere

        No, I don’t. The iPhone changed the industry. But even at time of unveiling it Steve Jobs just claimed he wanted a small piece of the pie. Because the pie is so huge, he would still be happy. Smartphones overall where a niche back then. iPhone is the reason that smartphones are no longer a niche, but this is cause and effect.

        Same for the car. Innovate on design, integration and interaction. It does not have to be disruptive for the industry to be successful and a great product.

      • aardman

        That’s just what he claimed for public consumption. It’s called “playing it safe” or “not angering your stockholders by triggering runaway speculation”.

      • stefnagel

        Probably true. Also true: Apple did not foresee the app economy, even tho’ it resembled what happened with tunes. It’s was a brand new, cheap heap of digital media, fueling the launch.

      • marcoselmalo

        Actually, Apple’s “low expectations” at the time were seen as quite ambitious, such was the state of the Smart Phone market. Much like the state of things when Apple introduced the iPod, there was a pre-existing market but it was relatively small. The iPod and the iPhone both kicked off mass market acceptance.

      • mehere

        I don’t think anyone was foreseeing the impact of the iPhone at date of unveiling. The last quarter profits alone where mind boggling. Anyone expecting a similar disruption for whatever comes up next from Apple, will sure be disappointed.

  • Wizard of Odyssey

    Don’t forget employees, labor is a big factor in the slim margins of the auto industry. It’s been said that GM is a healthcare/pension company that happens to make cars. Disruption of the status quo isn’t going to be very attractive if it happens at the expense of older manufacturing workers.

    • manupractice

      I’m sure Apple already knows all about this, considering the scrutiny that they already get for their current manufacturing practices.

      • Wizard of Odyssey

        The scrutiny has been focused on their operations in China. Assuming they do get into heavy manufacturing, I wonder if it would be in the US or elsewhere? I’m disappointed that this doesn’t seem to be under discussion, it’s all about the product.

      • Space Gorilla

        I wouldn’t assume Apple would do anything like the current auto industry, from manufacturing to labor to margins to design, and more. Your original comment notes the slim margins of the auto industry. If Apple gets into autos you can be certain their margins won’t be slim. How the current auto industry does things is largely meaningless.

      • Wizard of Odyssey

        “Largely meaningless” ignores the heavy regulation on this industry, way more than any space Apple has played in. They haven’t cracked cable TV or telco, and this is an order of magnitude more risky and complex, especially at consumer scale. Jean Louis Gassé’s recent blog entry speaks to this, and I think he knows a thing or two about Apple’s competencies and interests.

      • Space Gorilla

        I considered the regulation aspect, in fact I almost added to my comment, but decided not to. I take it as obvious that there’s room to disrupt within the framework of existing regulations. That’s what I mean by largely meaningless.

        The question isn’t whether Apple can build a great car, the question is whether Apple can be disruptive, offer something better, improve the user experience in some meaningful way. If they can we’ll see a car from Apple, if they feel they can’t contribute, we won’t. Simple as that. But it’s rather silly to debate whether or not Apple could develop the necessary capability. Building a car is complex, yes, but it isn’t magic, and the current quality of the auto industry is kind of a low bar to get over.

      • marcoselmalo

        The trend for automotive manufacturing in North America to serve Western Hemisphere markets is to move capacity to Mexico. This has been going on for 20+ years thanks to NAFTA and other FTAs. Brazil is also an automotive center for South America.

        It’s cheaper to ship cars built on the same continent. To service the Asian market, the car makers will build in Asia (probably China). For North and South America, the loci of manufacturing will be Mexico and Brazil. Another factor besides transportation of goods to market is wages. Chinese labor has become more costly, making LatAm workers more competitive.

        If you are interested in following up on this, do a Google or Bing news search using the names of big automakers and the following cities: Monterrey, Saltillo, Celeya, Guanajuato. You’ll get stories about the automakers building billion dollar plants.

    • Horace Dediu

      Are you referring to Chinese, Japanese, Malay or Korean workers? I’m pretty sure Czech auto industry workers and those in Khazakstan are not above global average wage.

      • Wizard of Odyssey

        Tesla manufactures in the USA. Somehow I doubt Apple would use Czech labor. What’s your take, Horace?

      • aardman

        How significant are labor costs in car manufacturing? Especially, knowing Apple, if they manufacture in the US it will only be with a highly automated, virtually worker-less factory.

    • aardman

      I thought GM is a financial services company that happens to make cars.

  • jacopogio

    perfect! thanks

  • Sumocat

    It’s quite amazing how one company that was never mentioned in the post can dominate the comments. How’s that for disruption?

    • unrelated

      “How’s that for disruption?”

      I’m going to say “unrelated”.

  • otravers

    This is nitpicking in the context of your broader point, but the Romans had already built tens of thousands of miles of paved roads across Europe 2,000 years ago, with much better engineering and durability than many of today’s roads (at least as built in the Americas).

    • aardman

      This is nitpicking too but how would Roman roads fare with the weight of fully laden semi-trailers pounding on them at all hours of the day?

    • Rene Stein

      Roman roads most likely lacked one thing that modern roads have: relatively cheap and efficient repairability. Asphalt is cheap, easy to work with, flexible and can be used to quickly repair roads that are damaged by much, much more use than the Roman roads had. I think I read somewhere that damage to a road surface is a cubic function on the weight of a vehicle.

  • aardman

    You replace the reciprocating ICE with an electric motor and most of the complexity in car manufacturing goes away. If a breakthrough in batteries or fuel cells is within reach (Big IF), what better time for a new entrant with a cash horde approaching New Zealand’s GDP to step in?

    Car manufacturers have spent billions upon billions in R&D to eke out marginal improvements in ICE performance and thermal efficiency to remain competitive and to satisfy emissions and fuel economy regulations. I think we just might be on the verge of ICEs being swept away by a tsunami of DC motors, (at least in light passenger vehicles), in the same way that piston engine aviation engines were demolished by turbines.

    Apple has one advantage that no new entrant in any industry has ever enjoyed: Millions upon millions of loyal and trusting customers who will buy an automobile if it has the Apple logo on it. Outside of Magna Steyr, there is little contract manufacturing in the auto industry. You think existing car mfrs with excess plant capacity won’t come rushing to Apple’s door if Apple sends word out that they’re looking to manufacture on contract?

    • Xavier Itzmann

      You forget Valmet of Finland

      • aardman

        Yes, thank you.

    • Mark

      >> Apple has one advantage that no new entrant in any industry has ever enjoyed: Millions upon millions of loyal and trusting customers who will buy an automobile if it has the Apple logo on it.

      I call this the “argument from irrationality”, or for the aggressive Apple haters (which you’re not) the “argument from stupidity”. I think this is a myth. I think this view takes a low view of humanity, and that Apple users are actually critical and discriminating and Apple’s view towards them as much more consistently respectful towards them than most companies to their customers. I think such commonly expressed folk-wisdom of irrationality is a reduction of something more complex and extraordinary. In any case, there is no way that a sustainable business can be made from lemming-like behavior no matter what the irrationalists wish to believe.

      • Walt French

        Another take is that customer “loyalty” is an asset for Apple.

        Companies only sell off their assets when they are not as profitable to them as they would be to somebody else. (Ya think?) You see customer loyalty being sold when e.g., the RCA brand gets sold Sony, who re-licenses it a cheapo electronics manufacturer.

        Apple is not in the business of selling one of its precious assets for pennies on the dollar. Nor will it risk it with ventures where the brand meaning might be pissed away: note Apple Pay, a classic Apple move, versus the Beats line, which they chose to keep distinct.

        All the big car companies have multiple marques—“Toyota” is secondary to Prius for most people, and isn’t even present on the Lexus. However customers value and trust the Toyota brand has little to do with how well the Lexus sells. Ditto the Scion.

      • Mark

        >> Another take is that customer “loyalty” is an asset for Apple.

        Apple’s customer loyalty isn’t in dispute, the question revolves around whether the loyalty rational or irrational. Reasoned or blind.

    • art hackett

      Speaking of turbines, that would make a hell of a hybrid.

  • Toyoda

    I feel like #7 largely negates #5. What does it mean that the profits on a Japanese brand still go to the same people, when a Japanese car is built in America by American workers?

  • Tim LeVier

    There is only one important question that needs to be answered: If Apple makes a car, will there be an Otterbox for it?

    • marcoselmalo

      Someone should Otterbox you for that silly comment. Upvoted because I like silly comments.

    • jameskatt

      There are already Otterboxes for cars. They are called bras and sun screens.

      • Tim LeVier

        I didn’t know that bras and sun screens made cars indestructible….

    • art hackett

      Probably cost as much as the car and require double the parking space.

  • John Pancoast

    Great article and fantastic chart; I would argue “P” represents vehicles (cars and trucks) per licensed driver.

  • marcoselmalo

    I’m totally cracking up over the the cup holder comment. Totally true and totally absurd!

    • art hackett

      Most android add ons, apart from the dangerous ones, seem like the equivalent of cup holders. Actually, cup holders are dangerous.

      • marcoselmalo

        You mean like software keyboards? 😉

      • art hackett

        Sure, but I’m not installing any iOS ones either yet.

  • Walt French

    Horace wrote, “But this might be the tell-tale sign that danger lurks. Theory suggests that incumbents going out of business is an essential indicator of industry health.”

    Sounds more like evolution’s “punctuated equilibrium” hypothesis, which notes that there can be apparent actual stability for long times, but that when a sufficient external pressure arises, dramatic change can happen.

    Death of incumbents would be the effect of new pressures (possibly a single disruptor’s actions), but I can’t see it as the cause. The multiple bankruptcies of the airline industry would suggest it’s dramatically different than it was a couple of decades back, but incumbents continue to dominate, successfully fending off the low-cost, would-be disruptors.

  • liam

    Car sharing could be a disruptive endeavor for the apple faithful, especially with a car designed for it.

  • Observer

    “To understand how cars will or won’t change, study roads”
    Well, Apple has its own maps service, so I assume they should know a lot about roads

  • krabbie

    Apple will not, I repeat NOT get into the car assembly business. For one reason. The car industry is dirty. Look around at all the 50 plus year old cars still on the road. Hang around any auto shop and think about Apple being part of that scene. NO. Apple will want to be in the control side/ design side/make it better side of the auto industrial complex but to jump into it… NO. Apple will want patents and partnerships to expand its IT iStuff and that is it.

  • katherine anderson

    The prospect of an Apple designed vehicle, and all the hoped-for possibilities there, to say nothing of all the good that can come from Apple’s expertise in alliance building in an industry that employs millions and millions of people around the globe … is that not bigger than disruption?

    Listen to what one of the world’s leading car executives, Italian-Canadian Sergio Marchionne has to say about structural change in the car business … (Does anyone really think Apple’s Eddy Cue sits on Sergio’s board just for his rumoured love of Ferrari cars?)

    Sergio has successfully integrated Fiat/Chrysler into a true global player, an “historic achievement” say car industry insiders, with sales “going through the roof.” The two brands have surpassed the target for market share, from 11% to 12 1/2% (which is massive in the car business apparently), and Chrysler alone has surpassed the targeted 2 million in unit sales.

    “This story is not over” the insiders say, “something yet is going to happen.”

    So here’s Sergio in his own words:

    … On Problems Running a Car Business

    “The real problem has to do with capital costs.

    “A lot of this capital cost is engineering work required to develop the platform and to develop the powertrain associated with this.

    “The problem you run into is that if you make exclusive use of that architecture for your own purposes and you don’t find a way to try and effectively make it available to others on a democratic basis so they can access the same architecture (effectively not repeat the cost event), you’re going to continue accumulating capital budgets to run this business, which on a stand-alone basis are huge. Just tremendous.

    “We laid out a plan to take us to 2018 which forces a set of investments of 55 billion euros …. we’re talking about $75 to $80 billion dollars. That’s a lot of money.

    … The Argument for Industry Consolidation

    “The argument for consolidation is one that is designed to drive down this cost of execution. We need to bring down the cost of the development of architectures and engines. The only way you can do this is by sharing it. And the sharing exercise that has been going on (whether it be project-related or otherwise) is not enough.

    “We’re doing the Mazda Spider that’s coming out as a Fiat. Have I saved money doing this? Yes. Have I done it as a mass market vehicle? The answer is no. There are few people that have shared mass market initiatives across companies.

    … Joining Forces on Engine Development

    “Do engines really need to be developed as stand-alone solutions for each carmaker? Or could carmakers do 85% of development on a joint basis and take the remainder of the 15% and make them unique by working on particular attributes of the engine family.

    “We‘re talking about $100’s of millions of dollars of what I consider to be redundant, duplicated investments, which ultimately do not bear any benefit to the consumer. And all of this is based on the fact that these are separate, stand-alone entities.

    … Mastering Growth and Standardization

    “Now I know we’ve gone through the smorgasbord in the 90’s of buying companies and doing aggregations, and we bought big, and we went global and butchered it. And we went back and unwound all those things and recreated the beginning of the cycle.

    “But the reality is that one of the reasons why the large car companies are successful (I’m talking about the large, large Toyotas of the world), is that they’ve mastered the concept of growth and standardization in a way that is effective.

    … “We Can do a Better Job than Toyota”

    “I think there are ways in which we can even improve on the uniqueness of the output of the standardization process, and that would allow us to run a multi-brand environment by commonizing a large portion of the industrial footprint and the industrial development cost base.

    “And that needs to continue to be the single largest driver of opportunity for margin improvement, and for the potential of these businesses ultimately to look at the capital markets, straight in their face, and say, “I am earning the cost of our capital”.

    “I don’t know any car companies today that can actually make that statement with a straight face, even in an environment that is as benign as the interest rate environment we live in.

    … It’s a Tough Issue

    “But it needs to be addressed. And it needs to be addressed intelligently, and by people who care ultimately about the stability of the industry in the medium and long term.

    “It’s not an immediate issue. My earnings in 2015 are not going to suffer because of this, and they may not suffer in 2016. But if you ask me, will they impact me in 2020? The answer is yes.

    … On China

    “People keep forgetting, while we’ve expanded the automotive business and gone to China, the Chinese industry has grown to be a larger market than the US, and we’ve created some pretty formidable players as joint venture partners over there who are going to be looking for space. And that space needs to be created because they will find it. And the only way to respond to that sort of competitive pressure is to make sure you’ve got the least-cost solution to execution of a plan.

    “We don’t have one today. That is all I’m saying.”

    • Eric Gen

      Thanks for sharing! Very interesting commentary.

  • Helena Diaz

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