Apple should make cars and *not* sell them

I’m writing again after another fun week. Just a few days after articles describing the poaching of employees between Tesla and Apple, we hear of Mercedes R&D heads and battery engineers from A123 also joining the Apple ranks. This has led to endless speculation on what an Apple car might be, and why it is or isn’t a good idea.

Articles such as this one from NPR, quote experts saying Apple should be worried about the low margins in the automotive industry. But that is clearly beside the point. Why would Apple make a car, just to sell it like any other car maker? That has never been the Apple way, and in that case buying Tesla would almost certainly make more sense given their financial position (or even buying Mercedes or BMW).

If Apple is going to build a car, it should be to change the automotive business model. The typical consumer experience of selecting, purchasing, financing, and servicing a car is far too frustrating a product experience for Apple to dare get involved with. A much better use of a potentially multi-billion dollar investment would be to make a car that you use, but don’t own. As @nickjaynes from Digital Trends pointed out a few days ago, skipping consumer ownership of cars altogether solves many of the biggest problems with cars today.

Generation Z is primed to never-start driving

With the rise and acceptance of Uber, Relayrides, and ZipCar, we have clearly begun to see a change in the culture of cars. Young people are basically disinterested in cars, and who is to blame them? The 7 year old sedan that makes a great first car is downright stone-age technology compared to the iPhone 6 in your pocket. Even a new connected washing machine or toaster might be more fun to use. When a teenager gets behind they wheel, they might first start streaming music from their phone, then proceed to text or snapchat from behind the wheel (or obey the law but wish that they didn't have to). Driving couldn't be further from their interest. In another 5 years, when a potential Apple car could be finished, the iPhone will be 13 years old, meaning that new drivers will have been just getting out of diapers when they started using these tiny devices that are more fun than cars.

Apple can make fully driverless cars reality by 2020

This is a best case scenario. To have fully driverless cars Apple will need to:

• Make sure at least one populous and wealthy state has fully regulated it. California might be the best candidate, but there are many good backup choices, and in a last ditch, countries such as the UK, Norway, or the UAE might be good alternative suitors to a US State.
• Solve for insurance — easily done with the endless Apple cash pile
• Get consumers ready — See above discussion of Generation Z.
• Build or buy the driverless tech — Google, Audi, Mercedes, & Tesla have already made it most of the way there. With 5 years of technology advancement this doesn't seem to be an insurmountable challenge.
• Build or buy the car tech — This is even easier, not because it’s less complicated but because there are existing experts all around the world happy to do it.

The end result would be a driverless Uber service, with lots of potential to expand and improve on that concept using your iPhone and connected apps. And here is where Apple continuing to own the cars — and making a high margin on usage with an Apple quality of experience, beats out selling them with stiff competition from existing players.

Transportation is large enough to be Apple’s biggest profit center

Smartphones, at $700 a pop, purchased by 1 billion people every two years, have provided such a lucrative market for Apple, that few other industries would be worth the effort. Other electronics products such as TVs, laptop and desktop computers, or audio equipment have never been nearly as profitable as the smartphone business is for Apple today. As a ~$700 billion company ($500 billion after removing cash), Apple will need to generate tens of billions in additional profit to achieve meaningful growth over time.

Transportation-as-a-service (TaaS) could be just the business to make that happen. BLS Data show that Americans spend $9k per household each year on transportation, and with 125M households, that makes for $1.1 Trillion in spending on transportation.

They could follow BMW’s lead with its DriveNow service, which offers electric BMW coupes with a pay as you go model. And as VentureBeat reported — BMW already considers itself a mobility services provider, not a car manufacturer. BMW charges $12 for 30 minutes, so in a simple scenario you could say it cost $24 for a round trip, such as a commute to work. If we guess that an Apple car would be busy for 4 hours a day at the same rate, that would be $35k per year in revenue per car. Even if the car cost $50k to make, you could quickly see the 50% profit margin that Apple is used to as possible, and a potential to have millions of cars on the road. And this is before even considering benefits from carpooling features, gains from saving on parking, or other revenue possibilities such as a driverless delivery service. Perhaps in between driving people to work, the car could be dropping off your latest online order for milk and bread, or even making a restocking trip for the restaurant you have lunch at.