It's 'Silicon Valley vs. Motor City'

Google Self-Driving Car
A man sits in a Google Inc. self-driving car in front of the company's headquarters in Mountain View, California. Photographer: David Paul Morris/Bloomberg

“Detroit vs. Everybody” is a popular t-shirt in the hometown of General Motors Co. and Ford Motor Co. these days.

Yet it might as well read “Silicon Valley vs. Motor City” as the San Francisco Bay Area emerges as a center for global transportation innovation. That was brought home last week, when people familiar with the matter said Apple Inc. is developing an electric vehicle and has devoted several hundred people to the secretive project.

“It’s the hot spot of development and that has in a big way spilled into the autos space,” said Jeff Schuster, senior vice president for forecasting at LMC Automotive. “These are the new suppliers, these are the new auto companies.”

Silicon Valley companies are getting into transportation from cars to drones to space ships -- and pioneering new business models in the industry besides. Google Inc. is investing in self-driving cars, drones and satellites. Facebook Inc., too, has been working on drones.

Elon Musk -- who spends time in both Silicon Valley and Los Angeles -- is building Space Exploration Technologies Corp., which is designing and manufacturing rockets and space crafts. Musk’s other high-profile venture, Tesla Motors Inc., is shaking up the electric-vehicle market. He also has an idea for superfast pods -- called a HyperLoop -- to run between cities like San Francisco to Los Angeles.

Meanwhile, Uber Technologies Inc., the mobile car-booking company based in San Francisco, is changing the way people move around major cities and has a valuation of $40 billion, more than double the market value of Fiat Chrysler Automobiles NV.

Then there are startups including RelayRides, which enables users to rent out their car, and Flywheel, a taxi-hailing app.

Triggering Interest

Driving the interest of Silicon Valley companies in transportation is how the industry is ripe for disruption and new technology. Plus companies like Apple, which has a $178 billion cash hoard, can afford to spend big on capital-intensive projects.

“If you look at our lives, cars are still an area that haven’t fundamentally changed in 100 years,” Gene Munster, an analyst with Piper Jaffray Cos., said Saturday in an interview. “When technology people think about opportunities, they think about what we use every day that hasn’t changed over time. That’s why this has been a ripe topic for tech companies to explore.”

Detroit Responds

Traditional automakers, of course, aren’t ignoring technology. Many are working on driverless car technology and have opened offices in Silicon Valley, including Ford’s new lab in Palo Alto, California, which is headed by a former mid-level Apple engineer. Daimler AG, for example, has a team of engineers working near its Stuttgart, Germany, headquarters on what the future of transportation may look like.

“We’re getting into the software-defined vehicle phase, where the software is becoming so important and becoming more and more differentiating for the actual product, the vehicle, that all of a sudden it’s not just up to the traditional car manufacturers anymore,” Thilo Koslowski, vice president and automotive practice leader at Gartner Inc., said. “It’s up to those companies that have a lot of expertise in innovation capabilities on the IT side.”

The revelation last week that Apple is working on an electric vehicle, came as a surprise to observers in Detroit. Engineers are marveling over Musk recently telling Bloomberg Businessweek that Apple was offering $250,000 signing bonuses in an effort to poach Tesla workers.

Apple Car

Apple’s car project is being headed by Steve Zadesky, vice president of iPhone product design, a person with knowledge of the matter has said. Apple often tests ideas that don’t get released, and the effort work may not lead to the company introducing an automobile, the person added.

The project is code-named Titan and the vehicle design resembles a minivan, the Wall Street Journal reported on Friday. Some Apple executives have flown to Austria to meet with contract manufacturers of high-end cars, the report said, citing people familiar with the matter. The Financial Times also reported Friday that Apple is hiring auto experts to work at a new research lab.

Apple already has technology that may lend itself to an electric car and expertise managing a vast supply chain. The company has long researched battery technology for use in its iPhones, iPads and Macs. The mapping system it debuted in 2012 can be used for navigation. Last year, Apple also introduced CarPlay, a software system that integrates iTunes, mapping, messaging and other applications for use by automakers.

Long Discussed

Apple has batted around the idea of developing a car for years. Phil Schiller, Apple’s senior vice president of marketing, said in 2012 court testimony that executives discussed building a car even before it released the iPhone in 2007. Mickey Drexler, an Apple board member and head of J Crew Group Inc., also said in 2012 that Apple co-founder Steve Jobs had wanted to build a car.

A representative of Apple, based in Cupertino, California, declined to comment on Friday.

Apple has hired from the auto industry over the years. Zadesky joined Apple 16 years ago from Ford, where he was an engineer for three years, according to LinkedIn. Apple’s chief financial officer, Luca Maestri, has worked at General Motors.

Over the past two years, Apple hired Haran Arasaratnam from Ford to work as a battery engineer, according to Arasaratnam’s LinkedIn profile. Apple also brought on Robert Gough in January to work on special projects. He’d spent the past four years at auto supplier Autoliv working on projects including the company’s radar division and developing active safety sensor technology, according to his LinkedIn profile.