Apple Inc. takes a tried-and-true approach to introducing new products: it designs in-house, sources its own parts, and has it assembled for sale by a contract manufacturer. After talks with some brand name automakers failed, the tech giant might follow a similar strategy — partnering with a lesser-known contract manufacturer, as it plots a foray into the automotive sector. Apple has three primary options for developing a vehicle: partnering with an established automaker, building its own production facilities, or partnering with a contract manufacturer like Foxconn or Magna International Inc.
The Cupertino, California-based firm has reached out to automakers such as Hyundai Motor Co., but the talks have stalled. In this case, Apple will develop the vehicle’s autonomous system, interior and exterior architecture, and on-board technology, while the carmaker would handle final manufacturing. An offer like this will effectively ask an established automaker to drop its brand and work as a contract assembler for a new competitor.
This will be like Apple asking mobile competitor Samsung Electronics Co. to produce the iPhone, according to a former chief at both Apple and Tesla Inc. Apple needs to question how a car operates, such as how the seats are designed and how the body looks, according to the source. A traditional automaker will be hesitant to assist such a potentially disruptive competitor, according to the source, who requested anonymity to address private matters.
Indeed, talks between Apple and the automobile industry seem to have stalled in recent months. Hyundai and Kia Motors Corp. announced that they were in negotiations to build an electric vehicle, but quickly backtracked. Last year, Apple’s self-driving car team met with Ferrari NV leaders. According to a source familiar with the conference, it is unclear what was discussed, but the talks did not progress. Nissan Motor Co. reported in February that it was not in talks with Apple. Herbert Diess, the CEO of Volkswagen AG, claimed that he is “not afraid” of Apple’s entrance into the industry. BMW AG’s CFO recently confirmed that he sleeps soundly.
Apple uses contract manufacturers such as Foxconn, Pegatron, Wistron, Flex Ltd., and Luxshare to make its computers, phones, and tablets. Apple has steered clear of constructing its own plants, which would cost billions of dollars in construction, wages, and training, as well as additional liabilities and complicated agreements with local governments. Factories are typically low-margin operations. Apple delegated the responsibility to associates, allowing it to concentrate on product design and production. The profit margins of the business dwarf those of suppliers like Foxconn and Pegatron.
According to Eric Noble, president of consultancy company the CarLab, Apple is more likely to go with a contract manufacturer because that’s the business model they’re used to. Since both firms are used to closely managing their supply chains, he believes a collaboration with an established carmaker will be a power struggle. According to industry insiders, Foxconn and Magna are the two main contenders for Apple’s company.
