An Apple car would increase pressure on Tesla and other automakers

Tesla has been called “the Apple of the automotive industry” for the amount of technology in its vehicles.

But as Apple is in talks to partner with South Korean automaker Hyundai-Kia for an electric vehicle, what does that mean for Tesla and other automakers?

Simply put, it’s complicated. Apple is known for its secrecy and there’s little information regarding what its business model would be for a so-called Apple Car. But overall, the tech giant entering new segments — phones, watches, music, streaming, etc. — has meant significant pressure for legacy companies to match its consumer interface and products. A car would likely be no different.

“There’s no question that Apple getting into the auto industry at all is going to put pressure on the rest of the car industry to up their game on their consumer experience,” said Michael Ramsey, vice president, analyst for automotive and smart mobility at research firm Gartner.

Ramsey said Apple’s ecosystem could “all be seamlessly integrated into an Apple-specific car,” which no other company other than Google would be able to match.

“It means more competition. That’s kind of the bottom line. It’s more competition,” said Stephanie Brinley, principal automotive analyst at IHS Markit. “And it’s also very well-funded competition, if they decided to do this.”

As reported earlier this week by CNBC, people familiar with the talks between Apple and Hyundai-Kia said that the electric vehicle is tentatively scheduled to go into production in 2024 at a Kia plant in Georgia, though they said the eventual rollout could be pushed back. They said no agreement has yet been reached between the two companies. In addition, they stressed that Apple may ultimately decide to partner with another automaker separately or in addition to working with Hyundai-Kia. 

Apple is already in millions of vehicles through partnerships with automakers for its Apple CarPlay, which is software that essentially mirrors much of an iPhone’s display onto a vehicle’s infotainment screen.

But actually producing and selling a car, even with a partner such as Hyundai-Kia, isn’t as easy as getting into other consumer segments. Automotive is a capital-intensive industry with long lead times, stricter safety regulations and far narrower margins than consumer electronics.

“It is not going to be easy for Apple to break into this space,” Brinley said. “It’s a very complex industry and it doesn’t get un-complexed just because you’re Apple.”

Bloomberg reported Friday that the talks between Hyundai-Kia had “paused.” But a car from Apple would likely have the same impact on the auto industry regardless of the company producing the vehicle.

To assist in hitting margins even near what the tech giant is used to with its consumer electronics, its “first vehicle” is expected to be autonomous, also known as self-driving. That means it is not designed to be driven by a human, but a computer using a suite of sensors and radar to “see” its environment.

Autonomous vehicles have been promised for years, but other than a fleet of retrofitted vehicles with such technologies being operated by Alphabet’s Waymo in Arizona, others such as General Motors, Uber and Lyft have missed goals or completely given up because of the difficulty.

An Apple car – known as Project Titan in the past – has been on and off for years. In 2017, Apple secured a permit to test autonomous vehicles in California. The company used already-built vehicles, including Lexus crossovers, and added Apple technology.

While driving may seem somewhat simple, humans – pedestrians, bikers, other drivers – and things in our environment such as animals can be unpredictable, making it extremely difficult to program a vehicle to safely react in all situations.

“When you look at the driving task, the most basic driving tasks like straight down the road between two lines or going around the corner, it’s not that hard,” said Sam Abuelsamid, principal research analyst at Navigant. “That’s not the part that gets people in trouble. It’s when you start to get into all the unusual scenarios, the edge cases.”

Abuelsamid said Apple has the money and potential expertise to develop such a system, but it remains a significantly difficult task. He expects an Apple car wouldn’t initially be for consumers, but services such as delivery and ride-hailing in select markets — areas targeted by many current companies developing self-driving vehicles.

“This is not going to be a mainstream product, but more of a premium product, which is typical of Apple because the one consistent thing about Apple, no matter what products they build, is they only get into stuff where they can make a significant profit margin,” he said. “The auto industry is a notoriously low margin business.”

But that’s the traditional automotive industry. The potential for autonomous vehicles for deliveries and ride-hailing/ride-sharing services is enormous. It takes the most expensive part of such businesses – the physical driver – out of the equation, allowing for increased profits. Cruise, a majority-owned autonomous vehicle subsidiary of GM, last year valued the autonomous vehicle industry at $8 trillion.

Morgan Stanley analyst Katy Huberty pegged the global auto and mobility market even higher at $10 trillion.

“Smartphones are a $500bn annual TAM (Total addressable market). Apple has about one-third of this market. The mobility market is $10 trillion. So Apple would only need a 2% share of this market to be the size of their iPhone business,” Huberty wrote in a research note in January.

It’s unclear at this time what Apple’s exact plans would be other than it is potentially going to have Hyundai-Kia produce a vehicle. Its business model has historically been selling products to consumers, but it has been growing more into services to rely less on such sales.

CNBC has reached out to Apple for comment. Hyundai-Kia declined to comment.

“When I look at Apple and the potential to build a car, I’ve always been a big fan,” Gartner’s Ramsey said. “I love the idea of it. It makes sense to me in the sense that if a car is becoming a consumer electronic device, in all the same ways that are our really advanced smartphones and other devices are powered by batteries and updated by software, Apple should be in this business.”

– CNBC’s Phil LeBeau contributed to this report.