Enter the ICar
The biggest automotive story of 2014 was, without a doubt, Google's reveal of its first self-driving car prototype. Though the General Motors and Takata recalls and the rise of subprime auto lending are important short-term trends, nothing illustrates this moment in the auto industry's history like the entry of a major tech player into a field dominated by a few giant, well-established companies.
Now, with a flood of news heralding Apple's move into the electric-vehicle market, it seems Silicon Valley's invasion of the auto sector is becoming a full-blown assault. But as significant as the tech giants' entry into the auto industry is, the vagueness of their plans seems to be causing more confusion than clarity.
So much so, in fact, that the auto industry seems to be responding to the Apple news by questioning why any high-margin technology firm might possibly want a piece of its low-margin, capital-intensive business. Former GM Chief Executive Officer Dan Akerson told Bloomberg News that Apple shareholders should be wary of a move into auto manufacturing because “a lot of people who don’t ever operate in it don’t understand and have a tendency to underestimate" the industry. Akerson speaks from experience: His five and a half years as an auto executive were riddled with rookie mistakes.
Akerson's latest mistake is failing to understand that no Silicon Valley juggernaut wants to simply beat the automakers at their own game. Apple and Google now have an historic strategic opportunity: The century-old automotive paradigm has reached maturity at the same time new technology is enabling new, entirely different relationships with personal mobility. It might not even be fair to call what Apple and Google seem to be working on as "cars" at all, considering the vehicles are likely to be offered on a service basis rather than for sale.
Instead of buying and owning an Apple or Google car, like you would a Ford or Toyota, you would simply have access to the nearest available one via an Uber-style app. Rather than having to fulfill every consumer mobility need with a single large purchase, these autonomous "service" vehicles will be optimized for different scenarios on a pay-per-use or subscription basis. One model may replace taxis for urban hops; another model may be focused on longer commutes, while yet another may provide weekend adventure mobility. Rather than owning a city car, a sedan and an SUV, an Apple or Google mobility service may someday replace all three with a single subscription.
This not only opens new relationships with mobility for consumers, but it also allows new players to avoid the pitfalls of the traditional auto industry. If operated as a service, Google or Apple could build far fewer cars than any modern automaker and ensure that those vehicles operate at peak efficiency rather than sitting parked, as most cars do most of the time. This, along with the relative simplicity of electric-vehicle manufacturing, would mean that a mobility service would need a far smaller manufacturing footprint. Because there is also no need for a dealership network, the service model avoids the need for huge investment and entanglement with complex dealership franchise laws. With the auto industry's main "moats" -- manufacturing and retail scale -- cut down to size, Apple and Google's interest in what we still think of as "cars" would become far more viable.
Google's long-term autonomy research represents the biggest technological threat to the car industry's comfortable paradigm, but Apple's massive brand power is perhaps an even greater concern. Whereas Google's experience with products has been inconsistent, Apple has proven its ability to realize huge new product segments. Indeed, creating an alternative to the traditional automobile is one of relatively few opportunities for Apple's post-Steve Jobs leaders to claim their own piece of history. If an Apple mobility service lives up to the company's "it just works" tagline, even on a very limited basis initially, it has an opportunity to open millions of minds to the possibility of not owning a car.
There are still many obstacles to this vision, let alone to Apple's success with it. The company is years behind Google, and even established automakers are looking into autonomous and electric drive technology. Apple's notorious struggles with its mapping app are cause for concern. But even with its massive head start, Google is still struggling to make its autonomous drive work in adverse conditions, and the regulatory hurdles facing driverless cars are considerable. With automakers filtering autonomous capabilities into upcoming models, the private-ownership model will try to hold off such mobility services as long as they can.
Still, Silicon Valley has a shot at offering the first true private alternative to individual vehicle ownership. And with two of the biggest tech firms racing toward this vision, traditional automakers are on notice. Tesla has shown that startups can execute competitive products and generate massive public goodwill in an industry that assumes consolidation, not new threats, is the chief competitive concern.
With Apple and Google reportedly targeting 2020 launch dates for their new mobility products, the auto industry now has about one full product cycle to respond. How it does so will determine not just their own futures, but also the future of a massive sector of the global industrial economy.
This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.
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