Apple Car development scenario prediction

A recent Bloomberg report on Apple Car shocked the industry.

According to Bloomberg: In addition to pure electric vehicles, Apple's Titan project is now focused on autonomous driving capabilities; Apple has completed most of the core work on its AV-EV car processor. The chip will use a neural processor that can handle the AI ​​required for autonomous driving; Apple is also very concerned about safety and will include multiple levels of redundancy; Apple is accelerating vehicle development; the first electric car may be launched as early as 2025; Apple is considering different business models ranging from Robotaxi to personal autonomous vehicles (AV).

Bloomberg's report also focuses on the potential new leader of the Titan project, Kevin Lynch, who is in charge of Apple Watch development. Lynch is a software expert and has more expertise than previous Titan managers. Software drivers are by far the most difficult development challenge for autonomous driving.

The Titan project has experienced many twists and turns since its launch in 2014. Lynch is the fifth person in charge of the Titan project.

This article focuses on two issues:

Why does Apple want to enter the electric car market?

How will Apple differentiate itself in this rapidly evolving new market?

Why would Apple want to enter the automotive industry? The simple answer is that there are not many large market opportunities that Apple can seize, and AV-EV is in line with what Apple does best. To understand the opportunity gap in each category, just look at Apple's revenue trends by product segment. The following table is a yearly summary of Apple's net income and product share by revenue (Apple's fiscal year ends in September this year).

Apple's revenue is still growing, but it's slowing compared to the four-year period ending in 2014. In 2010, Apple's net revenue exceeded $65 billion, growing to $183 billion by 2014, a compound annual growth rate of more than 29%. The strong growth reflects the success of the iPhone. However, Apple's net sales grew at a compound annual growth rate of only 7% between 2014 and 2020, and iPhone revenue peaked in 2018 and has been declining since then. From 2014 to 2020, Apple experienced two revenue declines, with growth of less than 7% in three years.

This year is different, the pandemic has brought strong growth to Apple's sales, up more than 33%. iPhone sales increased by 39%, a record high. But the growth in 2021 is an exception.

As you can see from the chart above, Apple's wearables are doing well, but a 10-11% share means the watch business is unlikely to become another iPhone. The same is true for the services business, which accounts for about 19% of total revenue, and services require new software and hardware product categories to grow.

Therefore, Apple must find a truly big product category to continue growing. To achieve 10% growth from 2021 alone, Apple will need another $36 billion in revenue. In comparison, the total revenue of companies ranked 325-332 on the Fortune Global 500 in 2021 is around $36 billion. Based on 2020 revenue, Apple ranks sixth on the Fortune list.

The new automotive and transportation industries present a huge market opportunity of trillions of dollars. These industries are all based on disruptive technologies, which is where Apple's strengths lie. Tim Cook told Bloomberg: "What we like to do is things that require the combination of hardware, software and services."

And AV-EV happens to be such a category.

AV-EV Timeline

The diagram below paints a picture of what Apple's AV-EV development might look like. Of course, this is pure speculation and only provides some foresight.

The blue boxes show Apple's technological development over the years, which dates back many years and will continue as long as Apple is in the automotive industry.

Assuming that Apple is likely to launch a prototype at least a year before the product is released, this scenario, similar to how the iPhone was launched, could help build an AV-EV ecosystem around the Apple platform.

The black frames represent three generations of prototypes that can serve as the basis for subsequent product launches.

The red box indicates AV-EV products that follow a similar trend line, more information is below. Apple is most interested in consumer products, which also applies to AV-EVs. But autonomous driving technology for passenger cars will take longer than autonomous driving technology based on MaaS such as Robotaxi and freight.

Including three generations of AV-EV, the first generation only provides L1-L3 autonomous driving capabilities.

Let's assume that Apple will have a fleet of vehicles similar to Robotaxi to perfect its self-driving capabilities and prepare for personal AVs. The green box shows three generations of Robotaxi, and their performance is constantly improving based on the prototype.

Technology Development Apple has already done most of the technology development. According to Bloomberg, Apple is developing an AI neural chip. Similarly, the AV sensor system and AV software driver must also be the best because they are the most complex systems.

Apple also places great emphasis on safety and redundancy, and Apple often uses the best suppliers to provide key technologies. It may use Mobileye to implement L1-L3 functions, which should be used in the first product. Mobileye also provides the best redundancy strategy for the sensor system, one system is based on cameras, and the other system uses radar and lidar, which all operate independently.

Apple may also include V2X capabilities due to its long-term benefits in improving driving safety for AVs and ADAS. C-V2X may also be something Apple products will adopt.

Apple is already involved in infotainment systems through its iPhone apps and related services. Apple is likely to significantly expand infotainment systems in its AV-EV and may add a premium audio system. These systems are one of the most profitable parts of the automotive industry, and Apple has the products and resources to compete with companies such as Harman and Bose.

With the advent of AVs, premium video content will become a new growth point in the infotainment market. Apple should be a major competitor. This market segment is called the autonomous driving "passenger economy" and has long-term potential because car passengers will travel or commute for several hours each week and consume video content while on the way.

Apple is likely to expand its app ecosystem for the AV-EV market, most likely building an automotive app store ecosystem, as well as apps and services for AV users. This market segment will become another success story for the Apple App Store in the decade since its launch.

prototype

Apple may release a prototype 18 months before a product is shipped, which will allow the development of applications, content, and other supporting infrastructure required for a new product category. This strategy worked very well when the iPhone was released in 2007.

The prototype will likely have a range of at least 400 miles and will also be able to charge at industry-leading speeds.

Automated driving functionality will be primarily at the ADAS level, with full L1-L3 functionality including DMS. Fleet applications may include limited L4 capabilities for MaaS use.

The second and third generation prototypes will expand these capabilities. Driving range, premium audio and video features and content, L4 capabilities within ODD, and content and service portfolios will expand rapidly.

AV-EV Fleet

It is unclear whether Apple will participate in MaaS areas such as Robotaxi and freight. My view is that Apple will participate in the Robotaxi field to create a self-driving experience for major cities and help launch personal AVs later.

The green boxes above represent three generations of fleet-focused AV-EV products. The first generation may use a safety driver and eventually transition to remote operation.

The second generation will expand L4 and ODD capabilities, and the specific details will depend on the AV regulations in each region. So far, all AV regulations include teleoperation. Therefore, it is expected that all AVs will include some type of teleoperation.

The third generation fleet will follow a similar development path, with expanded L4 capabilities and ODD, a growing portfolio of Apple content and AV-related services.

The main question now is whether Apple will have its own MaaS brand or will it use MaaS operators such as Lyft, Uber, etc. My guess is that Apple will use both approaches simultaneously to quickly gain experience and data to enable rapid development.

Personal passenger car

Apple's main customers have always been individual consumers who pursue premium products. This positioning strategy will continue with the Apple Car. L4 autonomous driving technology may not be available for personal AVs until after 2025. Therefore, Apple's first personal passenger car is expected to include only L3 AV technology. For safety reasons, a high-level DMS is expected to be included.

The Apple-centric infotainment system will feature a premium audio system and integration with other Apple systems. Advanced video features may also be included, but only for rear passengers or in parking mode.

The second generation of personal AV-EVs is expected to have limited L4 capabilities for some ODDs. The capabilities of ODDs will depend on the region and the type of AV regulations introduced over the next five years.

The third generation is expected to expand L4 and ODD capabilities. Then, the AV application ecosystem will accelerate and provide new Apple content consumption opportunities.

Apple continues to keep Project Titan a closely guarded secret, and given the lack of information, analysts can only speculate.

There are still a few issues here:

Which AV and MaaS business areas will Apple enter? Robotaxi through Apple fleet or Uber/Lyft, or personal AV?

Which regions and countries will Apple enter? When and how?

What is the electric vehicle manufacturing strategy? ODM (Foxconn), OEM (Hyundai Motor), or car manufacturing expert (Magna)?