By offering electric vehicles with self-driving capabilities and a ride-sharing service, Apple could transform the way people think about car ownership. Their extensive user base and brand appeal give them a competitive advantage, and pricing the ride-sharing service appropriately could attract users. Overall, Apple's entry into the automotive market has the potential to reshape the industry and raise important questions about the future of mobility.
Since Karl Benz started production of the first car with an internal combustion engine in 1886, Germany has played a central role in automotive history. That was then, however, and as the pace of innovation accelerates, the future for leading German car manufacturers becomes uncertain. With electric and autonomous vehicles, aspects such as software and user experience become important differentiators. Are BMW, Mercedes Benz (formerly Daimler) and the VW Group prepared to go head-to-head in this arena with new challengers such as Tesla, Polestar, Build Your Dreams (BYD) and perhaps Apple?
The German automotive industry
In Germany, 7.2% of all employees work in the automotive sector; 892,000 people are employed directly, 1.6 million indirectly, and a further 680,000 work in induced positions.
In 2022 automobiles and automobile parts constituted 15.6% of all German exports (more than 245 billion EUR) and became Germany’s most exported goods. In the same year, over 2.6 million German cars were sold within Germany, and another 2.6 million were exported worldwide.
Mercedes Benz, BMW, and the VW Group make up the majority of these figures: Mercedes Benz’s revenue was 150 billion EUR in 2022, BMW clocked 23.51 billion EUR, and the VW Group (with its 12 brands) turned over 279.2 billion EUR. In terms of net profits, they made 20.5 billion, 18.6 billion, and 15.8 billion EUR respectively, and together they account for 11.43% of the DAX-30-listed companies’ market capitalization.
No way around electric vehicles
In recent years, Tesla’s arrival prompted many companies, managers, and stock market investors to predict dramatic disruption in the automotive sector. In response to this change in the market, German car manufacturers added several electric vehicles to their product fleets. According to the German magazine “Auto Motor und Sport”, 14,506 units of the electric brands of BMW, Mercedes Benz, and VW were first registered with the German Bundeskraftfahramt in December 2022. So, the German electric car industry is gaining steam. But they have a lot to lose if an unexpected player pulls the rug out from beneath their feet…
Troublemaker from overseas
The most popular electric car brand today is Tesla, in particular the Model 3, of which 9,566 units were first registered in December 2022. But while the focus remains on Elon Musk’s brand and uprising Chinese e-car manufacturers, the biggest potential threat to the German automotive and mobility industry could be Apple.
Tim Cook’s motivation
A 2.5 trillion USD company, in 2022 Apple made 394 billion USD in revenue, slightly more than half of which came from iPhone sales with 205,489 billion USD. Its average margins are 36.3% on products and 71.7% on services. It has declared 94 billion USD in profit every year for the last two years—a doubling of the 57 billion in profits declared in Q4 2020). Apple's total assets in the fourth quarter of 2022 ran to 352.755 billion USD. In the second quarter of 2023 Apple declared 112.913 billion USD in current assets and 332.160 billion USD in total assets.
“We love to integrate hardware, software, and services, and find the intersection points of those because we think that’s where the magic occurs. And so that’s what we love to do. And we love to own the primary technology that’s around that.”
Tim Cook, interviewed by The New York Times's "Sway podcast", April 2021
If Apple wants to grow into a 4 or 6 trillion USD company, it needs to reach beyond its existing markets into areas that offer the opportunity to significantly increase its value. And Apple already has a lot of experience manufacturing products on a global scale, using contractors while ensuring high quality gets delivered. With the right contractor(s), an Apple car would fit right into its global supply chain. Apple also has other advantages over companies like Volkswagen, BMW, and Daimler: a huge user base plus experience in software development and user experience (UX) design.
Furthermore, Foxconn, one of Apple’s largest suppliers, announced it is ready to start producing electric vehicles in October 2022.
Premium brand with large market share
With Apple’s strong premium brand, it can ask customers to pay premium prices. An Apple car would reflect the brand philosophy, ensuring it resonates with the expectation of customers in a position to buy one, and justifying a premium price tag.
Apple customers are not just those with large disposable incomes. Many are willing to make compromises so they can buy an Apple product. An Apple car would likely also have a slightly broader appeal than that of another brand. Unusually for such a premium brand, Apple has a rather large market share; for example, 30.61% of worldwide smartphone sales (as of April 2023).
Current state of competition
The market leader in terms of automobile sales is Toyota with a global market share of 11.4% in the first quarter of 2023, followed by the Volkswagen brand with 6.2%. The highest market share of all electric vehicle manufacturers is held by Chinese manufacturer BYD, currently at rank 7 of the top 10 car manufacturers worldwide, due to an increase of 82.5% in sales in 2022. Tesla’s global market share is expected to reach 5% in 2023.
Apple’s operating margins reached 30.2% as of 1 June, 2023, whereas Toyota reported 6.8% in April to June 2023 after 12.2% in 2022. The Volkswagen Group reported 7.89% in 2022, and Tesla reported 17.2% in the same year. One of Apple’s main focuses would be on getting the best margins from its car sales.
Tough market for newcomers
In Germany on 1 January 2023, there were 48.8 million cars on the road, and the average car was 10 years old. Of the 2.65 million new cars registered in 2022, 1.37 million are from German brands. After a decade on the market, Tesla accounts for just 118,803 cars on German roads (or 0.2%). By April 2023, 11,636 Tesla Model Ys had made it onto German roads.
For a more global comparison, the average car in the EU is 12 years old and 13.1 years old in the US. Of the 57.5 million cars sold worldwide in 2022, 13.1 million were sold by German brands and 499,550 were sold by Tesla.
Overcoming this inertia and domination by domestic brands is just one of the challenges facing newcomers to the automotive market in Germany and the world. It will not be easy for Apple…
Disrupting mobility industries
How would Apple enter this difficult market and overcome these obstacles? The key to a real disruption would be level 5 self-driving technology.
Level 5 autonomous driving technology was initially viewed and promoted as the prerequisite for Apple to enter the automotive industry. Indeed, if Apple were to be the first to develop this technology, it would make car use a lot more efficient than it is now.
The average car is parked for 96% of its life. And even when you drive your car, you need to find somewhere to park it, which can be stressful, time-consuming, and expensive in cities or residential areas. Autonomous vehicles would all but eliminate these issues.
“There is a major disruption looming there. Not only for self-driving cars, but also electrification […] plus, you have ride sharing on top of this. And so you’ve got three vectors of change happening generally in the same time frame.”
Tim Cook, interviewed on "Bloomberg Studio 1.0", June 2017
Referring to Tim Cook, Apple has self-driving cars on its radar. Cook also mentions electrification and ride sharing. We believe Apple ultimately intends to build a prosumer platform with electric, self-driving vehicles around the concept of sharing.
Step back from autonomous driving
Recent reports on “Project Titan”—the codename for the Apple Car—indicate however, that Apple has currently taken a step back from autonomously driving cars. By the end of 2022, “MacRumors” reported, Apple is currently aiming for a car that “will be able to use an autonomous mode on highways, but manual driving will be required in other areas.”
Therefore, the Apple Car could be an electric vehicle with self-driving capabilities (and eventually autonomous driving) sold at a premium price to willing buyers.
The future lies in a sharing economy
In addition to offering the Apple Car for sale, Apple could offer an Apple Car ride-sharing service. Currently, the largest player in the ride-sharing market is Uber; but with 7.6 billion trips worldwide and 131 million active users in 2022 it is still unprofitable. However, autonomous vehicles would enable Apple to achieve the same coverage as Uber with fewer vehicles and without needing to share their revenue with the drivers.
Furthermore, Apple’s long-term aim would be to have enough service cars to eliminate wait times, ensuring maximum convenience for users. This would make it a viable long-term alternative to owning a vehicle, and many would use Apple’s service instead of more expensive or more uncomfortable alternatives such as public transport.
Initially, Apple would launch the car service in a select group of cities; likely more expensive locations such as London, Munich, New York, and Singapore. That, combined with the service being iOS exclusive, would likely create a lot of interest and hype around the Apple Car.
Most car manufacturers would struggle to finance such a fleet, but Apple could leverage some of its cash and cash-equivalent assets to get the first vehicles on the road.
“Some people say, "Give the customers what they want." But that's not my approach. Our job is to figure out what they're going to want before they do. I think Henry Ford once said, "If I'd asked customers what they wanted, they would have told me, 'A faster horse!'" People don't know what they want until you show it to them. That's why I never rely on market research. Our task is to read things that are not yet on the page.”
Steve Jobs, The Exclusive Biography, February 2015
To bridge the gap between owning a car and using a ride-sharing service, owners could share their vehicle with Apple’s service. So, after your Apple Car drops you off at work, it could take your partner to their dentist’s appointment, drop your children at school, or pick up grandma to go visit with friends. This way, your car could also be used to make you some money or Apple credit when it would otherwise be parked, and still have time to recharge and be waiting for you when you want to go home.
Apple Cars would therefore combine Apple products and services, much like the iPhone and App Store already does today. Apple Car owners would become prosumers, leveraging the sharing economy logic of companies like Airbnb but for the automotive and mobility sectors. A sharing economy would just be the start for Apple; it could build new business models like Apple-maintained company fleets, or company accounts to allow team members to travel for free.
While not all owners would want to share their cars, enough would participate to make the service work. These customers would contribute their own cars as assets to the Apple Car community, fueling a mobility revolution and helping Apple completely change the way we get from A to B.
How Apple attracts users
The main challenge, then, would be convincing people to invest in the Apple Car either as a buyer or a regular user of the ride-sharing service.
Apple’s biggest advantage is its massive user base, supported by its strong brand. Few can compete with Apple on this front. Most of the 1 billion iPhones in circulation already have an Apple account with payment credentials set up. Any other automotive competitor would have to spend a lot of resources on user acquisition before they could even begin to roll out autonomous vehicles, while Apple can put its service in the hands of one in every ten people on earth at the push of a button.
Another big differentiator is Apple’s extensive experience in software design. In a vehicle where the driving experience takes a back seat to the interface and overall experience, software is the battlefield upon which the market leader for autonomous vehicles will be decided.
Additionally, so much of our lives now happens through the lens of our smartphones that being able to integrate phone functionality seamlessly into a car would be a powerful enough reason to make Apple users choose the Apple Car over any other model. There is a reason why over 800 car models now come with Apple Car Play and over 500 with Android Auto; people want to extend their phones’ capabilities into their car. But even if the current leading automotive brands are working on their best in-car software ever, they must bridge and surpass Apple’s four decades’ worth of experience in consumer software.
Indeed, Apple’s presentation of their integrated Car Play functionality, which takes control of all the displays and gauges in a car at WWDC 2022 was widely seen as a preview of Apple Car functionalities.
Getting the price right
With the Apple Car a pleasure to ride in, the pricing of the ride-sharing service is the other key aspect. In Germany, the average cost per kilometer (km) of driving and owning a Mercedes S-Class is 1.47 EUR/km, referring to "ADAC-Autokosten-Rechner". For a Mercedes Benz E-Class, the cost is approximately 0.97 EUR/km. Taxis in Germany cost on average 2.05 EUR/km, making them twice as expensive as owning an E-Class.
Apple’s car sharing service would probably target an average price per km somewhere between the cost of owning a car and the cost of taking a taxi: 1.50 EUR/km, for example.
The cost of production for these cars would probably be offset over time against the price per km. We estimate this would cost 0.75 EUR/km, leaving the other 0.75 EUR/km as profit. Apple could offer car owners who share with the service 0.60 EUR/km to help cover service-related depreciation and maintenance, retaining 0.90 EUR/km as profit.
Let’s assume the service would be used to capacity, and that each service car would be able to travel somewhere up to 300,000 km per year. About 50% of this would be with a passenger, which means that if Apple can put one million ride-sharing service cars on the road, first year service revenues would be more than 200 billion EUR.
In summary, we find this model convincing: it is economically feasible and manages the potential risks while offering a strong benefit to Apple’s users.
The market cycle begins
Over time, we would see the way people own and use cars changing. By sharing your car with the service, the cost of ownership would be somewhat mitigated. This would enable more people to own an Apple Car. And in turn it would lead to more people switching to an Apple Car, which would mean faster market growth and faster pickups for service users.
The increased amount of time each car spends driving would also result in a need for much more regular maintenance. While a disruption of this magnitude might result in some job losses across the market, there would be much greater demand for parts and maintenance, which would create new jobs and perhaps even new types of induced work. Once the ride-sharing service has reached a certain level of coverage in an area, families with three cars in one city could downsize to one car instead.
Apple’s hardware manufacturing experience, massive user base, and strengths in software development and UX design will make it a fearsome contender in the automotive and mobility sector. These markets hold much potential for Apple, which is only increased once it can build a level 5 autonomous vehicle.
Selling an Apple Car while offering a ride-sharing service and allowing owners to share or monetize their vehicles’ downtime could be the catalyst for complete market disruption. The big German car manufacturers would be left scrambling to react in terms of business model, user acquisition, and software, while Apple could conquer global market leadership.
The more electric vehicles Apple could get on the road as part of their ride-sharing service, the more effective it would become, with Apple Car owners willing to share bolstering those numbers. This innovation would begin to change the way we think about car ownership.
However, there are more questions to answer:
What happens next?
Who could compete with Apple on this level?
Which automotive brands might partner with Apple to survive?
What other changes in mobility and services would take place?
We would love to hear what you think!
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