Shall we, shan’t we? Apple and Tesla

Welcome back to 2021 – starting off, much like 2020 ended, except that we now have Covid vaccination programmes.  I hope that you had some downtime over the holiday period and have returned refreshed for whatever the new year brings.  I did consider making this first blog of the year a personal prediction of what some of the main events might be, but I felt that would be setting myself up to fail, so instead turn to a couple stories that have been doing the rounds over the holiday period related to Apple and Tesla.

Some of you will recall that a few years ago, one of the big topics was the Google Car and Apple’s Project Titan, both appearing to be projects to develop cars under their own brands and take on the established players.  The Google Car was formally announced and many images exist of the rather odd prototypes.  Titan has never been officially announced, so there was no need to confirm that it had been cancelled, but that was the perception until now, when rumours resurfaced and Hyundai inadvertently confirmed last week that they were in discussion with Apple about supporting a car programme.  The attitude of investors to this prospect can be seen in the fact that Hyundai’s share price surged by 20% or US$9 billion on the news.

Meanwhile, Tesla, who had previously decried the use of a physical dealership – even announcing in February 2019 that they would close their existing stores and go online only, before reversing that decision the following month – have now announced an expansion of their physical network in Europe.  This will at least in part be based on outlets that look pretty much like normal dealerships, and in some cases are sites that were operated by dealers of other brands.  They will (for now at least) be operated directly by Tesla, but it still represents a convergence of the new and old worlds.

Previous speculation around the Google and Apple cars was that these were more about developing technologies – particularly around autonomy – that they could then sell to established OEMs as a Tier 1 supplier.  A few years ago, this seemed to make sense as Tesla was at the time struggling with scaling up production, discovering all the complexity around vehicle manufacturing that established players have perfected over many decades.  By sticking to technology supply, they could leave the traditional bits to others, and cream off the best margin for themselves.  That still appears to be the case of Google, who spun their activity off into Waymo, still recognised as one of the leaders in this field.  However, the new rumours from Apple tend to suggest that they are intent on launching a car under their own brand, even if the actual manufacturing is outsourced – as it is for all their other products.

You can tie these two news items together by linking them to a third factor – the emergence of credible new car brands, mainly from China so far, which leverage the relative simplicity of battery electric vehicle (BEV) architectures to launch viable products within 2-3 years of launching their new brand.  We only see the tip of the iceberg from Europe or the US – there are many failed BEV manufacturers in China, and others who will inevitably join them, but companies like Aiways, Byton and Nio all seem to be making positive progress.  Some of the players have established their own manufacturing facilities like Tesla, others are relying on established car brands to produce the cars for them on a sub-contract basis.  Meanwhile, Tesla themselves appear to have improved their launch management for new facilities and products, avoiding the very public issues they had with the Model 3 launch in Freemont in 2017, and established brands have started to launch their own BEVs in growing numbers.

If you’re Tim Cook, sitting on the world’s most valuable brand according to Forbes, and a Himalayan mountain range of cash, it must be tempting to dust off the Titan plans (if they were ever truly shelved) and conclude that there is a real opportunity to put some of that to work in a new sector.  If you’re Elon Musk, now feeling stronger after the ‘dark days’ of the Model 3 launch when he claims he offered to sell Tesla to Apple, but watching competition coming from all sides, you need to think about how you will attract enough new customers when your product is only part of a growing crowd.  I therefore feel more confident in making two predictions for say 2023, than I do of making a number for 2021.  Apple will launch a BEV under their own brand, produced under sub-contract, sold online and through Apple Stores, and the Tesla distribution model will look a lot more like those of established players, with an omni-channel offer, even if it remains slimmer and company-owned.  Check back with me in three years on both…