Katy Huberty on the Apple Car: First they want to get the hardware right

When it comes to Apple, Morgan Stanley’s transportation analyst defers to the firm’s information hardware analyst.

From a note to clients that landed on my desktop Tuesday:

ADAM JONAS: So, Katy, when I talk with clients about Apple potentially entering the auto industry, I try to emphasize that Apple probably does not want to make a car the way most people think about cars…. but that they may want to turn your car into a mobile Apple store and fundamentally reconceive what the experience is. So, where do you think the biggest value add is for Apple and selling vehicles that might be privately owned, or is it that turning the car into mobile real estate where the value is in the network and the services that could be offered to consumers in, say, like an app store environment in the car?

KATY HUBERTY: Right. Well, first, let me reiterate something, because I get this question a lot. Does Apple really want to build a car? Why don’t they just focus on the software and services? Apple is successful when they’re vertically integrated. They want a hand in the design, in how the software communicates with the hardware, what are the right components and technologies to use. And so, well, yes, any big technology, the most significant value is in terms of profit dollars but also in terms of alpha-generated by investors and in software and services for sure. But Apple will just as much focus on the other elements—building, designing, what that vehicle looks like, how the components and the software operate together—as it will on the services.

So, I want to reiterate that because it comes up so often. And ultimately—and they proved this with the phone just recently—that services in total has become more than 20 percent of Apple’s revenue. Still the iPhone is half of the business. So, they can’t be successful in services until they’re successful in selling the device that this new type of computer and services sit on top of.

So, I wouldn’t put the cart before the horse. Yes, there will be an important element around what services will become available in an automobile once the driver’s focus and attention is freed up, but first they have to get the car right. You and I have debated this before. I wouldn’t be surprised if Apple comes to market with an EV, right? A car that looks similar to automobiles that are on the market today with a steering wheel. They did this with the iPhone where in the first iPhone, there was no app store. It was first about getting the hardware right. How do you differentiate on the hardware? It was a larger screen that ultimately paved the way to watch Netflix and play video games and what-have-you on that device. I think the focus right now, I’m sure, is on design and the vehicle itself, but with well thought out plans around what services could emerge longer term.

My take: The cart, in this case, is software and services, and the horse, paradoxically, is the car.

11 Comments

  1. Electric cars only work with effective power management & storage. Battery composition, efficient charging, how far can I go on a full charge? Apple’s 3nm SoC is likely to be extremely energy efficient. New battery designs & existing production facilities are going online. The whole smartphone thing didn’t get rolling until Apple & others figured out to get enough power onboard to get you through the day!

    3
    August 31, 2021
  2. Fred Stein said:
    The future is about parking, which is solved with level 5 Autonomy which obviates the need for car ownership. In cities parking is a big cost to the car owner, and a bigger cost to all others as parking increases congestion.

    Apple’s silicon and sw stack already have the best, and most secure, on-device AI.

    When and if ???

    2
    August 31, 2021
    • John Konopka said:
      What about all the stuff you carry in your car? Extra jackets, shoes, electronics, etc. What if you go shopping and buy a stuff, how do you get it home?

      I can imagine that for some cases a sort of driverless Lyft car is fine, but for many cases people will want their own vehicles.

      0
      August 31, 2021
  3. Jerry Doyle said:
    What I find revealing here is the willful admission that Apple is building the car hardware. For the longest, many believed Apple would only handle the integration of the software through provision of services. In other words, Apple would not design the hardware. Now we see consensually (I believe) everyone embracing there will be an Apple Car involving vertical integration with Apple designing the hardware (car), contracting a car manufacturer to build it and with Apple having total control over the development and integration of the software that goes into that car. This is an Apple car no less than what we see offered today from Tesla. Does anyone have an opposing view?

    1
    August 31, 2021
    • Fred Stein said:
      Orthogonal, not oppositional view: I see mobility-as-a-service provided by an Apple design autonomous vehicle that would resemble cars and small vans today. Apple will sell these to end-users as well.

      For North American suburbanites, car ownership is easy. Most already own a garage and share wide streets, free parking at work and malls, etc. Globally the trend (see Horace’s piece on this) is people living in cities, where parking adds hundred$$ per month.

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      August 31, 2021
      • Fred, In the case of early iPhones less affluent folks in India, China and Vietnam rented iPhones from rental kiosks for the weekend to impress friends/dates but also to have smartphone capabilities starting Friday night. Sunday night they turned in those devices and reactivated much older models. Same goes for Free2Move cars in DC.

        1
        August 31, 2021
    • Gregg Thurman said:
      Now we see consensually (I believe) everyone embracing there will be an Apple Car involving vertical integration

      Gee, where have I heard this before?

      Today’s car manufacturers are nothing more than assemblers of 20,000 off the shelf parts wrapped in a somewhat distinctive body. Just like Foxconn’s assembly of iPhones et all, this is a low margin business.

      Apple will do much better supplying the sensor hardware/technology and fully integrated software that depends on Apple designed processors and cellular radios.

      The key to the success of this strategy will be product reliability (no accidents is self driving mode). That is going to require a combination of AI, ML, custom processors and sensors tied together with a highly optimized OS.

      In this model Apple contractually controls the entire technology stack, preventing the fragmentation that occurred in with early computer manufacturers and today’s Android community. This environment is going to appeal to EV startups that by definition will not have brand recognition or the resources to develop the technology that the consumer will trust. Intel made big bones with its “Intel Inside” campaign. Apple is perfectly positioned to do the same thing with autonomous EV’s.

      By 2035 worldwide auto sales will approximate 75 million units annually. Of that about 25% will be EVs. Imagine if Apple got 5% of that market at $1000 per unit.

      Seventy-five million * 25% * 5% * $5000 = $4.7 Billion. My $5000 per unit is a pure SWAG, but I can imagine the EV package could cost manufacturers many multiples (2? 3?) of that. That’s a fixed cost to the manufacturer, with future development and product support borne by Apple.

      Now this is where I do see satellite based internet connectivity would be advantages.

      1
      August 31, 2021
      • Gregg Thurman said:
        First reference to stack cost ($1000) is wrong. It should be $5000. It’s important to point out that I have no knowledge as to what this stack would cost, which is why I speculate it could cost manufacturers as much as $15000.

        I don’t think that amount is out of line for the Apple brand, performance, ease of use, reliability and consumer confidence.

        1
        August 31, 2021
      • David Drinkwater said:
        “Today’s car manufacturers are nothing more than assemblers of 20,000 off the shelf parts wrapped in a somewhat distinctive body.”

        One of the things that Tesla is accomplishing by eliminating the ICE engine is eliminating a sh!tload of those parts.

        Dunno. Not invested yet, but Tesla is looking more and more interesting to me.

        (Not selling AAPL to acquire TSLA.)

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        August 31, 2021
        • Kirk DeBernardi said:
          @ David Drinkwater —

          I.

          Love.

          My.

          Tesla.

          …and for mostly what it ISN’T, as compared to ICE vehicles.

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          September 2, 2021

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