Apple is the latest tech giant to announce their intention to break into the automobile sector. The US company is reportedly planning to create self-driving electric vehicles using a business model similar to its iPhone production. The Apple Car, probably not the name they will choose, will add to the increasing uncertainty facing the traditional auto industry.
In the US, companies such as Velodyne Lidar (a maker of light detection and ranging sensors that act as the “eyes” of self-driving cars), have aroused strong investor attention. In China, investors flocked to Contemporary Amperex Technology, the world’s largest maker of batteries for electric vehicles, and other suppliers of EV-related components. (CATL has announced plans to build a 24 GWh battery plant in Erfurt, Germany).
An Apple Car would bring significant new technologies, suggesting that suppliers of key automobile components will change. The Apple EV project is also expected to have a significant impact on the production process, using lessons learned from the mass production of smartphones and moving to a more horizontal division of production. One likely outcome of this will be an increase in the diversity of supply chain, with increased innovation and skillset requirements.
Apple is likely to focus entirely on designing cars while outsourcing production to companies such as Hon Hai Precision or Flextronics. As in the case of iPhones, Apple is expected to devote itself to design work, including self-driving technology, while outsourcing production. The approach is likely to shake the auto industry’s existing business model of vertical integration, with a range of component manufacturers looking to develop new capacity and bring new production techniques to the auto industry.
To envision the future of vehicle production, one only has to look at China, where EVs now account for over 50% of all auto sales. Baidu, a top Chinese internet company leading the development of self-driving technology, announced this month that it would produce EVs with Zhejiang Geely Holding Group (owner of Volvo cars), on an original-equipment-manufacturing basis. In addition, Didi Chuxing Technology took the wraps off an EV developed for service in November. China’s biggest ride-hailing platform, used by 550m people around the world, aims to put 1m units into use by 2025. The car will be manufactured by BYD Auto, one of the largest EV manufacturers in China, who is already expanding into both the US and Europe.
The traditional auto component supply chain is also being disrupted. Magna International, a top Canadian auto parts supplier that has advanced into production of cars on behalf of automakers, is seen as another leading candidate to manufacture the Apple Car (Magna recently created a JV with Korea’s LG group to focus on EV components). Over the next 12 months, we are likely to see more alliances between auto component companies and technology players. This, in turn, will create opportunities for EDOs, in both the US and Europe, to win new advanced manufacturing investments that utilise both traditional engineering and software skills.
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