Apple famously turned the phone, music, computer and electronic retailing businesses on their ears and threatens to do the same to financial services. The Great Disrupter is getting into smartwatches this spring – millions of them are reportedly on order for three planned models. But it appears to have a far bigger and tougher target in its sights: electric cars.
Rumours that Apple is about to dive into the treacherous waters of auto manufacturing have been fuelled by reports that hundreds of Apple staffers and a handful of high-profile automotive engineers, designers and robotics experts – including the former head of Mercedes-Benz's R&D in North America – have been toiling in a secret location on something code-named Project Titan.
Whether Titan involves construction of a high-end electric vehicle to compete with products coming from existing automotive powers, Tesla Motors or Google's self-driving robotic version isn't known. It may be that Apple is working on software and integrated systems that can be peddled to existing auto makers for self-driving vehicles down the road, which would make more sense than trying to build its own cars.
As usual, Apple isn't saying anything. But one way or another, Apple is determined to grab a big chunk of the "smart" cars of the near future, which offer the ideal mobile platform to carry its operating systems and software beyond "smart" homes and offices.
No company is in better financial position to undertake such an expensive venture, which comes with plenty of risks but has the potential to become yet another category-killer.
Dividend-loving investors may not like it. But Apple can easily swallow the huge investment in money and time it would take to establish a profitable footprint in the industry.
Apple could speed up the process by snapping up a major global car maker. Its current cash hoard of about $178-billion (U.S.) would cover the acquisition of both General Motors and Ford Motor at current market levels and still leave about $55-billion in the vault.
Of course, Apple would never let itself be saddled with the enormous legacy costs that would accompany such purchases. So a better bet would see the tech company follow the strategy it uses for all its products and hand over assembly to the automotive equivalent of a Foxconn. Apple executives recently visited contract manufacturers specializing in high-end cars, including Magna International's Austrian unit, Magna Steyr, the Wall Street Journal reported.
Before dismissing the idea of an iCar out of hand, it's worth noting that Apple has mastered the art of staying ahead of consumer wants and needs (who, apart from maybe Steve Jobs, knew the iPad would become instantly indispensable?) and that its huge cash flow and vast reserves mean it can afford to take more risks than any other company already in the auto business.
Apple could generate $50-billion in revenue a year if it managed to capture even 10 per cent of the U.S. vehicle market, one analyst told Forbes.
But unlike smartphones, cars are not generally a high-margin business. If an Apple car venture quickly reached the size of, say, Porsche, it would boost operating profit by a mere 5 per cent, notes Henry Blodget of Business Insider. To generate a more substantial gain of 20 per cent, it would have to create something with the size, market strength and high-end appeal of BMW, he adds.
And that assumes BMW and all the other competitors sit around and let Apple eat their lunch.
Nothing's impossible where Apple's concerned. But reinventing the wheels may not be the best way to go.