The maker of the Mac and the iPhone will have to devise a more advanced car than Tesla with all the craftsmanship of a Mercedes. Can its culture foster this? (This is episode 7 of our Future of Cars series)
Take a look at the dashboard of a Mercedes-Benz next time you see one. There is a precise rule in the heavily documented design fundamentals of the brand, which states that under no circumstances can the edges of the leather lining around the dash have bends with a radius greater than 1.5mm.
Why? Simply because edges that are exceedingly sharp don’t look nice. Thus say the lords of design in Stuttgart at Daimler AG. As a consequence, engineers had to figure out a complex and onerous manufacturing process, mixing foam and glue to get the right bend.
On the opposite end, Tesla doesn’t care about such details. It “simply” wants to build the most advanced lineup of electric vehicles possible, rolling out them as fast as possible, and improving them along the way. It clocks a tenth of the mileage required in tests for a new Audi or a Mercedes. The space between panels might be wider than the ones allowed ina German car, but their customers are surprisingly forgiving.
Consider this fact: Tesla simultaneously carries the highest number of defects, and the highest satisfaction score of any brand. Here are the data compiled by JD Power:
What does that say? When it comes to throwing $80,000 or $100,000 at a car, the overall driving experience and feeling now matter more than the “gaps and flush” (the space between body panels — an obsession at Mercedes or Audi) or the radius of a piece of a lining on the dashboard.
Technology modifies the feelings we experience and shapes the new preferences of the customer. I’m not sure German luxury carmakers have caught on to this. They are likely to remain focused on the tiny details, hoping to preserve their competitive advantage and margin. As a result, the driving experience between a BMW, Mercedes, or Audi will be roughly the same, while the gap will be huge with driving a Tesla.
As we detailed in our series about the future of cars (episode list below), the Tesla driving experience is based on a series of innovations that transformed how it feels — performance, interface, autopilot (well…), superchargers, design — at the expense of imperfections that are corrected over time. Customers don’t care.
Hence there are many questions for Apple:
1. Can Apple have it both ways, i.e. a Tesla-advanced machine, with the detailed craftsmanship of a German luxury sedan?
Aside from the technical challenge — blowing up the near-perfection of a 160 gr. smartphone to the size of a 2-ton car — lies a question of culture. Will Apple lean towards Mercedes, meaning nothing overwhelmingly new but unbeatable finishing touches, or will it opt for a more “tech” approach of a product in perpetual innovation with constant upgrades and course corrections?
It will be hard to combine the two: having a perfectly shaped leather dashboard and the ability to summon one’s car from the parking spot with an app. Tesla owners voted for the latter, but Apple’s top managemen often favor the evergreen luxury of a Mercedes; it might influence their priorities.
2. Volume vs economics
NYU ’s Scott Galloway summed up Apple’s peculiar economics by saying that it carries the margin of Ferrari and volumes of Toyota. Can the metaphor stand up for Apple as an automaker? Even if Apple narrows down its car ambitions to the high-end segment, the economics are hard. The “affordable luxury” concept worked beautifully when applied to a $1200 phone or a $250 headphones. Will it scale up for a sophisticated automobile?
To understand, consider the chart below that summarizes the operating margin of various companies mentioned in this article:
From a manufacturing perspective, Apple will have to produce initially at least 100,000 cars per year to exist in its targeted segment. That’s for a start. As a comparison, Tesla churned out 185,000 cars in the first quarter of 2021 alone, and the annual throughput of Mercedes is slightly less than 2.4 m cars per year, vs. 2.2 for BMW and 1.7m for Audi — these numbers are just to state the magnitude of the challenge ahead.
3. Manufacturing the AppleCar
Apple will most likely try to replicate its successful modus operandi: attention to minute details in design and process, and a tightly controlled supply chain. Apple specifies the tiniest sequences of a machining process and at the same time secures the output of hundreds of suppliers thanks to billions of non-refundable advances. Add to this the logistics of delivering devices such as the 220 million iPhones anticipated this year.
Again: how can Apple adapt its incredible organization to a large and complex item as a car? Here are possible scenarios (we assume that Apple will not build assembly plants from scratch as Tesla did):
- Apple could rely on a small manufacturer like Magna Steyr which makes models like the Mercedes-Benz G-Class, the Jaguar E-Pace, as well as the Jaguar I-Pace or the cabriolet BMW Z4. Again: super polished products but tiny outputs. Major drawback: Magna Steyr is located in Austria which makes little sense for an AppleCar aimed, at least in its initial phase, at the North American market.
- More likely, Apple could shape its historic supplier Foxconn into its car manufacturer. It makes a lot of sense: first, Foxconn is considering building a plant in Wisconsin, which could solve many logistic and political issues (the alternative is setting up a facility in Mexico). Two, Foxconn is definitely willing to diversify into the EV sector. It has dealt with Fisker and the Chinese SUV maker Byton. Three, no supplier in the world is better positioned to accommodate Apple’s manic demands than Foxconn. Four, the Taiwanese supplier currently has an operating margin of 3.3%, which means it will know how to manage the notoriously thin profitability of the car business.
4. What could be the differentiation factors for Apple’s car?
“Apple is known for creating objects that we didn’t know we wanted. But for the car industry, it will have to come with a genuine disruptive product — that can be built at the scale of the automotive industry”, says Philippe Chain, former VP for quality at Tesla who later developed the Audi e-Tron.
Design is obviously Apple’s main strength but Chain says they will have to depart from what we know in terms of car luxury.
“I don’t expect them to beat Mercedes for the molding of the grainy leather, but they might — and they will have to — come up with something completely different in terms of shape, material, structure, feeling,” Chain said.
Software is another key edge for Apple. But can it beat Tesla, which is well ahead in terms of building a bespoke operating system, and like Apple, already designs its own chips? No doubt that Apple will integrate our digital life into its transportation system, but it will have to be truly insanely innovative as well as reliable (like coming up with a nearly perfect autopilot for instance).
Maybe Apple can make a breakthrough in power management? “There is little gain to make in that field”, says Chain. “The million-mile battery is already in the works, and I don’t see the advantage for Apple. Faster charging? Tesla is working on it and there are physical limitations (the cross-section of the copper cable)”.
One route that Apple can certainly revisit is the notion of the ownership of a car. The future driver of the AppleCar is not likely to own it. They might pay a monthly fee to Apple (after a substantial down payment) to receive servicing, software updates, and all the maintenance aspects ( in 2040 there won’t be such a thing as a “battered AppleCar” as there are battered Corollas today). Apple might be the first carmaker to make that leap.
One sure thing: if Apple wants to dive into the car business, it will have to surprise us in many ways.
The episode list of our Car series:
01: The car, reinvented. From scratch.
02: Your next car will be electric
03: How Tesla cracked the code of automobile innovation
04: The Global Race for Battery Supply
05: Code on Wheels
06: EVs: The Manufacturing Revolution
A note to my readers
I’m glad to be resuming the Monday Note after a few months of interruption. In the coming weeks, I will continue the Future of Cars series, by talking about car-as-a-service, electric trucks, advanced manufacturing, batteries, and the perspective of having one day the electric version of the F-150, the best-selling vehicle in America since 1981.
Other subjects I’m working on: the change of paradigm in the space business; the next Cambridge Analytica scandal (hint: it involves our health data) and how the news business might be increasingly subsidized by Big Tech.
So, stay tuned, and subscribe to the Monday Note (and if you read French, subscribe to my brand new, more cutting, and more compact column: Episodique.es) — FF