Hyundai Motor and Apple are in serious talks, we’re told, and that a deal between the Korean automaker and the Silicon Valley tech giant might be announced as soon as Feb. 17.
Whatever happens, don’t hold out hope for an iCar. Here’s why.
While car companies the world over rely on stable markets, a predictable regulatory framework and reliable customers, Silicon Valley’s business model is grounded in disruption. The car business, because of the enormous up-front costs, long-term liabilities and regulatory demands, needs stability. It is, therefore, the antithesis of big tech.
Ask yourself this: Why would Apple, or any big tech player, make a wholesale leap into making, selling and supporting cars? Why would Apple — which contracts out much or all of the hard work of building disposable devices to third-world sweatshops, and then sells those devices into an essentially unregulated environment — want to become General Motors or even Telsa? Apple is already worth US$2.3 trillion.
Apple may have another goal in mind, but an iCar seems unlikely.
Yes, there have been consistent rumours about Silicon Valley’s biggest players taking a serious leap into the car business. Don’t believe them. The tech business and auto industry live in incompatible worlds.
You see, Silicon Valley is a bastion of libertarian thought, a place where tech giants strive to create an unrestrained, free-for-all kind of tech-centric world. It’s a mysterious world to regulators, who have for the most part left tech to do as it pleases.
Thus, Mark Zuckerberg of Facebook, Jeff Bezos of Amazon and their ilk have operated for the most part free of the constraints of government controls, labor unions, and even everyday social norms and constraints. Few, if any, question why tech is free to build obsolescence into every device and service, while car companies have been forced to create longevity in everything – from vehicles to service and support. But tech has had a regulatory/labor market/social conscience free ride for decades.
The biggest of them all – Facebook, Amazon, Alphabet (Google) — have by any reasonable measure become functional monopolies. Apple and Microsoft, huge and dominant tech players, are similarly subject to little regulation and minimal market or social forces. These and others grind out staggering profits without the burden of meaningful controls, formal or informal.
Car companies, however, buried under a global patchwork of regulations, are by necessity conservative and careful. Every new model must achieve certain and evermore stringent standards with the endgame being zero fatalities and zero tailpipe emissions. Car plants? All pay workers relatively well, many are heavily unionized and even those that aren’t must meet stringent health and safety standards.
It can cost a car company $1 billion to develop and launch a new model, a process that can take up to seven years. That new model must be proven safe not just in crash tests, but in real-world use, and last for 20 years. The slightest problem can lead to years of costly litigation. If a car fails, people die. If an iPhone crashes, you just throw it out an get the next version.
No wonder Silicon Valley mogul Elon Musk is alone among this billionaire peers. Musk, an egotistical boor, started a car company front scratch and ignited a wave of innovation. He’d done as a disruptive Silicon Valley disciple.
Tesla looks like a one-off. Apple is no Tesla.
As RBC Dominion Securities analyst Paul Steves notes in a new research report titled Pad Your Wallet First, Flashy Cars Can Come Later, an Apple electric car is a “long-term” proposition.
The Apple Wallet, however, is the perfect Silicon Valley product. It could bring in US$40 billion in revenue with a fraction of what it costs to develop a new SUV. Apple has perhaps 1.5 billion potential customers waiting for its potentially highly disruptive crypto exchange business.
Perhaps Hyundai Motor will ink some sort of autonomous electric car deal with Apple. Perhaps Hyundai will agree to be a contract manufacturer for Apple, like China’s Foxcon, which makes iPhones in 12 factories.
But it’s hard to Apple forging a Foxcon-like relationship with Hyundai or any carmaker. The corporate cultures, business models and operating environments – tech versus auto – are worlds apart.
Apple will not become Tesla 2.0, not in my lifetime.