Apple's electric car will become a nightmare for the automotive industry

Foreign media published an analytical article on Monday saying that before Apple continues to advance its "Project Titan" and decides to develop electric vehicles, the company may first consider the challenges currently facing the automotive industry.

Sources said last weekend that hundreds of people are involved in the development of the Titan project, including some talent poached from the automotive industry. The electric car developed by Apple will challenge electric car manufacturer Tesla, as well as hybrid car manufacturers such as Nissan, General Motors and Ford.

If Project Titan leads to a real electric car, the company will have to prepare for changing safety regulations, a rapidly evolving regulatory environment, and keep in mind that electric cars have thin profit margins and often generate losses, which could have an impact on Apple shareholders who prefer high profits.

Eric Gordon, a professor at the Ross School of Business at the University of Michigan, said, "Apple has never entered the mobile phone industry before and finally succeeded. But the automotive business is two orders of magnitude more difficult than the mobile phone business. You can easily sign a contract with a Chinese manufacturer to assemble a mobile phone for you; but you can't easily sign a more complex automotive assembly order."

Of course, Apple also has a huge advantage, as the company has $178 billion in cash reserves. According to Bloomberg statistics, this cash reserve is six times that of Volkswagen and seven times that of General Motors. In fact, Apple's cash reserves alone are enough to support General Motors' capital expenditure budget for the next 20 years.

Jon Boresa, CEO of consulting firm Auto Lectrification, believes that Apple is likely to consider multiple options and is more likely to design software that can control self-driving cars or rethink the control of today's cars by humans. Boresa said, "The automotive industry is very unfamiliar to Apple. By developing cars independently, Apple can implant more software, more computing performance, more automated control, and even cloud services. Apple can cooperate with automakers to get Apple's products and services into cars."

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Sam Jeff, a senior analyst at consulting firm Navigant Consulting, believes that Apple is considering entering the automotive industry simply because the company needs to find a way to invest its cash reserves. Jeff said, "How can Apple spend all its cash? The company must enter new markets. In view of this, Apple's entry into the automotive market is inevitable. The future of the automotive industry will be about how to replicate the design essence of the consumer electronics industry."

Apple is considered the current design leader, but that alone is not enough to make its electric car a hit. The continued decline in gasoline prices has weakened sales of fuel-efficient cars. Nissan has already cut the price of its electric Leaf EV to boost sales; General Motors has also cut the price of its hybrid Chevrolet Volt for the same reason. Electric cars still account for only a small share of the global auto industry. Nissan needs to sell 100,000 Leaf EVs in the next three years; Tesla sold a record 31,655 Model S electric cars last year and plans to sell 55,000 Model S cars this year. But in 2014, the global auto industry sold more than 100 million vehicles.

The right choice

Eric Noble, president of automotive industry consulting firm The CarLab, said that whether electric vehicles are the right choice for the future of the automotive industry is still a controversial issue. The automobile emission standards set by the California Air Resources Board are likely to be adopted by many states in the United States, and it may also affect federal emission standards. According to the committee's presumption, automakers must sell a certain proportion of zero-emission vehicles when selling cars in California. These zero-emission vehicles can be hydrogen fuel cell vehicles, electric vehicles or hybrid vehicles.

Regulatory changes currently favor hydrogen fuel cell vehicles because they can be refueled faster than electric cars and travel farther on a single charge. Similarly, California offers consumers a tax rebate for hydrogen fuel cell vehicles that is twice as high as for regular electric cars. All of this may make the market favor hydrogen fuel cell vehicles over electric cars, Noble said.

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Toyota Motor Corp. and Honda Motor Co. both plan to sell fuel-cell vehicles in the U.S. this year. Toyota has already cut sales of its RAV4 electric sport utility vehicle, while Honda has ended sales of its Fit micro electric car in the U.S.

"Another risk is that electric vehicles are ignored," Noble said. "You can argue that Toyota and Honda have already developed electric vehicles. While the future may belong to electric vehicles, there is no doubt that electric vehicles are still struggling to gain a foothold in the market today."

"For Apple, the question is not whether it has the money to develop a car, but the return on investment. Shareholders and analysts will hate the low profit margins of the electric car business and the distraction it will cause Apple. And Apple's electric car may not be cool and it will have to keep up with Tesla and Google." Google has been working on its own self-driving car project and demonstrated a prototype in December last year.

Tesla Losses

Tesla has racked up $1.3 billion in losses since 2008 and doesn't expect to be profitable until 2020.

Tesla has been clear about the challenges and costs of mass production that the company faces. In a Feb. 11 earnings call, Tesla CEO Elon Musk said Tesla will "spend a lot of money" as the company delivers the first Model X SUVs to consumers this summer, builds its Gigafactory and designs the Model 3 sedan for the second half of 2017.

"If Apple starts working on an electric car project now, it will take years for the company to catch up with Tesla," said Ben Carlo, an analyst at investment bank RW Baird in San Francisco. "Even if Apple's electric car design is complete, it still needs to secure batteries. Tesla is years ahead on this issue."

Apple faces another major challenge. Even after decades of making cars, Toyota Motor Corp. and General Motors Co. haven't perfected the safety of their vehicles.

Government fines

The U.S. Department of Justice last year fined Toyota $1.2 billion to settle allegations that Toyota issued false information when recalling cars with unintended acceleration problems from 2009 to 2010. The Justice Department said Toyota concealed the facts after receiving complaints from car owners about unintended acceleration and submitted false reports to the U.S. Highway Safety Administration.

GM could also face the same penalty for recalling 2.59 million defective vehicles, and GM Chief Financial Officer Zach Stephens said this month that GM may delay plans to return more cash to shareholders until it receives the fine.

According to statistics from the National Highway Traffic Safety Administration, automakers have recalled 64 million vehicles, double the number in 2004. Noble wondered why Apple wanted to get involved in the automotive industry when it only needed to implant its technology into cars, rather than facing the many headaches that an automaker would face.

Musk gave another explanation for Apple's electric car project. He said in a Tesla conference call, "Apple has exhausted all the ways to spend money. Apple spends money like running water, and it can never run out of money."

As a winner of Toutiao's Qingyun Plan and Baijiahao's Bai+ Plan, the 2019 Baidu Digital Author of the Year, the Baijiahao's Most Popular Author in the Technology Field, the 2019 Sogou Technology and Culture Author, and the 2021 Baijiahao Quarterly Influential Creator, he has won many awards, including the 2013 Sohu Best Industry Media Person, the 2015 China New Media Entrepreneurship Competition Beijing Third Place, the 2015 Guangmang Experience Award, the 2015 China New Media Entrepreneurship Competition Finals Third Place, and the 2018 Baidu Dynamic Annual Powerful Celebrity.