Here’s what’s driving Apple to build a car – and what Google and Samsung are going to do about it: Control Shift

In the past week, a number of credible reports have surfaced from outlets such as the Wall Street Journal and Reuters suggesting a team of up to 1000 engineers are working on a car, under the codename “Project Titan”.

At first glance, the auto market appears to be a strange target for Apple. However, there are a number of reasons why Apple’s attempts to gear up development on an iCar make a lot of sense.

A computer on wheels

As I’ve previously discussed in Control Shift, the average car now features hundreds of embedded processors. These small computers power everything from anti-lock brakes and keyless entry to the ignition and – of course – your in-car entertainment system.

The dominant operating system for the systems embedded in cars is QNX, which is in turn owned by BlackBerry. (That’s right, if you own a car, you probably own a BlackBerry device without even realising it!)

Increasingly, motorists expect these systems to talk to each other, with other devices they own (for example, the in-car entertainment systems can access songs off a users’ smartphone) or – in industry – to be accessible within fleet management software.

With software increasingly important to cars, auto makers have begun appearing at consumer electronics trade shows such as the International CES. But writing software and creating ‘cloud-based’ online services is a very different discipline to building a car, and it’s left big auto exposed to disruption.

Google is already speeding ahead

It should come as little surprise, then, that Apple’s long-time rival Google has been doing a lot of research when it comes to the auto and transport market.

Last year at Google I/O, it announced it has already signed up 25 major auto makers to use its Android Auto app platform. The search giant is also working on an autonomous “driverless car”, with its program racking up 1.126 million kilometres of autonomous control as of April of last year.

And that’s without mentioning the potential ace up its sleeve when it comes to the auto-systems market: Google Maps.

It’s not just Google doing the disrupting

Of course, it’s not just Google that Apple is watching. Elon Musk’s electric car maker, Tesla Motors, is showing the way when it comes to Silicon Valley tech startups disrupting the auto industry. And that’s before Musk’s plan for a high-capacity low-cost battery factory (known as a Gigafactory) continues to gain momentum.

Another familiar tech name that already has a lot of traction in the auto market is BlackBerry. Recently, BlackBerry chief executive John Chen previously announced an Internet of Things (IoT) platform aimed at businesses in transport-related industries. BlackBerry’s QNX software even forms the basis of Apple’s CarPlay in-car navigation and entertainment system.

And I probably don’t even need to mention the headaches a little ridesharing business called Uber is causing for the taxi industry and regulators the world over.

What about Samsung?

Even Apple’s long-time nemesis, Samsung, has taken its first steps into the auto market.

Back in 1994, Samsung Group launched a new car company called Samsung Motors. Unfortunately, its sense of timing was awful. It launched its first car in 1998, just as the Asian Financial Crisis struck. It ended up selling a 70% stake to French auto giant Renault in what became a joint venture called Samsung Renault Motors. The company’s SM3electric car reportedly boasts a 58% share of the South Korean electric car market.

Meanwhile, in January last year, Samsung battery subsidiary SDI announced a major battery joint venture in China, with the tech giant racing South Korean compatriots LG Chem and SK innovation for a share of China’s growing electric vehicle market.

Forget about Ford and Holden – the future of cars could end up being Apple versus Samsung!

Much more scope for disruption

For the tech giants, locking consumers’ cars into a particular cloud/IoT ecosystem (such as QNX/BlackBerry, Android, iOS or Windows/Azure) could, in turn, help to keep them locked in to the same platform for all their other devices.

There’s also the prospect of new innovations, such as self-driving electric cars, disrupting the auto industry in the coming years.

And that’s without mentioning the ways that even researching things such as, for example, car batteries can potentially lead to dividends in other areas, such as smartphone batteries.

R&D takes time

The problem for Apple (and all the other tech giants looking at the auto market) is that developing new tech products takes time. The average smartphone takes between 12 to 18 months to create from a clean sheet to a product in stores.

For a Silicon Valley firm looking to either partner with or race against Detroit with a next generation smart car, building one from scratch is likely to take years rather than months. Any company that wants to be in that race needs to start doing their R&D now (as Google, BlackBerry and Tesla have).

But Apple has the fuel to get there

The good news for Apple is that it is in a strong position to win that race.

Consider this: Apple’s profit during the quarter leading up to Christmas was a massive $US18 billion ($A22.6 billion). By contrast, the market capitalisation of Ford is around $US60 billion. In other words, at current prices and without taking on any debt, Apple could afford to buy every single share in Ford, paying cash with a significant premium, for less than the profit from four of its Christmas quarters.

Phrased differently, Apple could afford to lose $US1 billion a year every year in researching smart cars over 18 years without investing any more than the profits from one year’s Christmas quarter.

So why is Apple charging the iCar?

When you look at Apple’s strong financial position, combined with the strong prospects for disruption in the auto market over the coming years, the decision for it to begin car-related research and development makes a lot of sense.

Assuming Apple chooses to go down the path of releasing its own car, any iCar will most likely be a few years off. That said, no matter what your business, it will be worth watching Apple’s moves in this space closely.