(Bloomberg) – Apple Inc. A tried-and-true approach to launching new products: The company designs in-house, exports its own ingredients, and works with a contract manufacturer to assemble them for sale.
As the tech giant plans to enter the auto market, it may adopt a similar strategy – working with a lesser-known contract manufacturer – after talks with some of the brand’s auto makers have stalled.
To build a car, Apple has three primary options: partnering with an existing automaker; Build their own manufacturing facilities; Or team up with a contract manufacturer like Foxconn or Magna International Inc.
The Cupertino, California company reached out to the automakers including Hyundai Motor, but the discussions did not go well. In this scenario, Apple would develop a standalone vehicle system, interior and exterior design, and embedded technology, leaving the final production to the automaker. Essentially, such a deal would require an incumbent automobile company to relinquish its trademark and become a contract assembly company for a new competitor.
A longtime manager at both Apple and Tesla Inc. said: It would be like Apple asking Samsung Electronics, a bitter smartphone competition, to make the iPhone. Apple wants to challenge assumptions about how the car works – how the seats are made and what the body looks like, the person said. The person, who requested anonymity while discussing private matters, said the traditional automaker would be reluctant to assist such a potentially troubled competitor.
In fact, it appears that discussions between Apple and the auto industry have stalled in recent months. Hyundai and Kia Motors confirmed talks about developing an electric vehicle, but backed out soon after. Apple’s self-driving car team met with representatives from Ferrari NV last year. It is unclear what was discussed, but talks have not progressed, according to a person familiar with the meeting.
In February, Nissan Motor Co. said it was not in talks with Apple. Volkswagen AG CEO Herbert Des said he is “not afraid” of Apple entering the industry. BMW AG CFO recently said he is sleeping peacefully.
For computers, phones, and tablets, Apple relies on contract manufacturers such as Foxconn, Pegatron, Wistron, and Flex Ltd. The Luxshare. The iPhone maker has avoided building its own factories, an effort that will cost billions of dollars in construction, labor wages and training, along with new commitments and complex deals with local governments.
Factories are generally a low margin business. Apple leaves that to the partners, focusing on product design and development. The company’s profit margins dwarf those of suppliers like Foxconn and Pegatron.
Tesla, the most successful electric car maker to date, has lost billions of dollars running its own factories and only recently started making a regular income. Last year, the company reported a profit of close to $ 700 million. Apple made more than $ 60 billion in the same period.
“The auto industry’s profit margins are lower than Apple’s current model,” Goldman Sachs analysts wrote in a recent investor note. Analysts added that some luxury brands, such as Ferrari, are more profitable, but these are “advanced cases and it is likely that they will be difficult to replicate in larger volumes.”
Eric Noble, head of consulting firm CarLab, said Apple is more likely to do business with a contract manufacturer because that’s the business model they’re used to. He believes that partnering with an existing carmaker will be a power struggle because the two companies are used to tightly controlling their supply chains.
This is why Foxconn and Magna are the main contenders for Apple’s business, according to industry insiders.
Foxconn, also known as Hon Hai Precision Industry Co. , Current relationship with Apple as the flagship assembler of iPhones. The Taiwanese company is already branching out into the auto industry. In October, it introduced an electric vehicle chassis and software platform to help automakers bring models to market faster. Last month, it unveiled a deal to accumulate more than 250,000 EVs annually for Fisker Inc. Emerging.
An Apple employee involved in the manufacturing said Foxconn used to have Apple engineers tell it what to do and that the company’s factories were already filled with Apple-designed equipment. The person requested anonymity while discussing sensitive matters.
Magna has some history with Apple, too. The two were in talks to build an Apple car when the iPhone maker first took off this path about five years ago. Magna is also more experienced in the automotive industry. It collects luxury models for companies including BMW, Daimler AG and Jaguar Land Rover.
The CEO of a well-known self-driving car company was surprised to see Apple talking to incumbent carmakers when there was an option like Magna.
Noble, who has worked with the Canadian auto supplier on projects in the past, said Magna is the most reasonable choice, and described the company as “incredibly good” at what it does.
For its part, Apple appears to be designing its car with production in mind. The company recently announced a list of jobs looking for a “Senior Manufacturing Engineer” for its own enterprise portfolio, as the team leads their work on a car. The candidate will be responsible for developing a team of engineers focused on manufacturing and supply chain strategy. A person is also required to have experience working with aluminum, steel, composites, and base materials in automobiles.
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