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Apple reportedly wants to build a car the same way it manufactures the iPhone. Experts explain why the upside outweighs the risk as long as it finds the right partner. (AAPL, MGA)

Business

Tim Cook

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As discussions between several traditional automakers and Apple have reportedly fizzled, industry experts think that the on-again-off-again Apple Car project could rely on a contract manufacturer to do the heavy lifting. 

That actually makes far more sense than “Project Titan,” as the effort has been codenamed, being an in-house undertaking for Cupertino. 

With Apple apparently on the outs with both Volkswagen and Hyundai — major carmakers with which CEO Tim Cook and his team have held talks — two other names are in the picture: Canada’s Magna International and Taiwan’s Foxconn, according to Bloomberg’s Mark Gurman and Gabrielle Coppola.

Sam Abuelsamid, principal analyst at Guidehouse Research, agreed that Foxconn or Magna could be the most likely candidates to take on Project Titan, if Apple elects to get serious.

Foxconn is no surprise. It’s been manufacturing iPhones for years and has recently ramped up its automotive ambitions, signing a deal with Fisker Inc. to develop a new vehicle by 2023. 

Magna is also a logical choice. The world’s largest contract manufacturer, it makes vehicles for BMW and Jaguar Land Rover, among others, and also has a deal with Fisker to produce a vehicle, the Ocean SUV, by 2022, on a Magna-developed, all-electric platform.

Why a car is much harder than an iPhone

“Foxconn obviously has a long-standing relationship with Apple, but they’ve never really been in automotive or safety-critical systems,” Abuelsamid told Insider. “They also don’t produce most of the components that would need to go into a vehicle and would need to subcontract much of that.

“Magna would be a new partner for Apple, but they have a long history of producing both complete vehicles for other [automakers], as well as most of the components that go into a vehicle. They also have access to the full automotive supply chain.”

No matter the relationship, though, building a car — especially if you’re looking to change a paradigm the way Apple likes to — is far more challenging than a consumer-electronics gadget. Automobiles have to spend years on the road and meet stringent and complex safety regulations. 

“As we’ve seen, despite electric vehicles being simpler than internal-combustion vehicles, it’s not a trivial matter to ramp up production of something as complex as a car,” Abuelsamid said. “The consequences of messing up are a lot bigger than your phone bending when you put it in your pocket.”

Project Titan has seen so many stops and starts that observers have developed a healthy level of skepticism about whether Apple will ever commit to anything that a buyer might choose over a known quantity from Tesla, Ford, or Chevy.

Maybe the Apple Car won’t be a car that customers can buy

“I still remain hugely skeptical that Apple will ultimately pull the trigger on building cars,” Abuelsamid said. 

“But if they do, I doubt they will be sold to consumers, but will instead be a premium robo-taxi service in markets where there is a more affluent audience that can afford to pay higher prices. This would be necessary to hit Apple’s typically high margin targets of 35%-plus.”

In that respect, Project Titan could be something completely different from what a market weaned on Tesla expects — but it could also be something that keeps Apple in the kind of money that has made it one of the world’s most valuable companies. And not incidentally, it could support Apple’s infamous desire to micromanage every aspect of its products while also diving into new lines of business that don’t involve selling physical technologies.

“No volume automaker achieves anywhere near those margins,” Abuelsamid said. “Robo-taxis would also fit in with Apple’s desire to grow services revenue and retain control.”

The US-China relationship could pose problems 

Another factor is the increasingly fraught US-China relationship, which could induce Apple to look for a partner that could build a car closer to home.

“We know Apple will partner with someone on car production, and the company’s history with Foxconn makes that the obvious play,” said Karl Brauer, executive publisher at CarExpert.com.

“However, Apple has also experienced the instability of trade relations with China over the past four years, and given the likely lower profit margin on a car versus computers and phones, it’s possible the tech giant would try to set up local production.”

Brauer also suggested that it could be a good idea for Apple to emulate the company that’s moved the needle the farthest with electric cars. 

“There’s nothing limiting Apple’s automotive production to a single partner or location,” he said. “Having multiple plants in multiple locations has proven beneficial for Tesla. With China and the US as the two largest auto markets on the planet, why not produce vehicles in both locations?”

Ultimately, Apple might decide that it isn’t worth it to move into the car business. But for now, the rumor mill continues to churn, and lately, it’s been in overdrive.

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