At first glance, the forays Apple, Google, and other tech giants are making into the automotive world don’t seem particularly lucrative.
Building automobiles requires factories, equipment, and an army of people to design and assemble large pieces of steel, plastic, and glass. This almost guarantees slimmer profits. The world’s 10 largest automakers had an operating margin of just 5.2% in 2020, a fraction of the 34% enjoyed by tech industry leaders, according to data compiled by Bloomberg.
But for Apple and other behemoths getting into self-driving technology or having big plans for their own cars, this push isn’t just about breaking into a new market – it’s about defending valuable territory.
“Why are tech companies getting into autonomous driving? Because they can and because they have to, ”said Chris Gerdes, co-director of the Center for Automotive Research at Stanford University. “There are business models that people aren’t aware of. “
A market expected to exceed $ 2 trillion by 2030 is hard to ignore. By then, more than 58 million vehicles around the world are expected to drive themselves. And Big Tech has the means – from artificial intelligence and big data to chipmaking and engineering – to disrupt this century-old industry.
What is at stake, in essence, is something even more valuable than profitability: the last unclaimed corner of consumers’ attention during their waking hours.
The amount of time people spend in cars, especially in the United States, is important. Americans were driving 307.8 hours in 2016, or about six hours per week, according to the latest available data from the American Automobile Association.
It’s a good chunk of life for someone who hasn’t spent using apps on an iPhone, searching on Google, or mindlessly scrolling through Instagram. Any business that is able to free up this time in any meaningful way will also have a good chance of capturing it.
The world’s inexorable move towards more environmentally friendly smart cars is impossible to miss. While governments haven’t already declared their plans to be carbon neutral by the end of this decade, in some cases, plenty of research shows that combustion-engine cars are following the dinosaurs’ path.
BloombergNEF’s Annual Electric Vehicle Outlook, released earlier this month, sees global oil demand from all road transport peaks in just six years, assuming no new policy measures are introduced. By 2025, electric vehicles will reach 10% of global passenger vehicle sales, reaching 28% in 2030 and 58% in 2040. Eventually, autonomous vehicles will completely reshape the automotive and freight markets.
Against this backdrop, it’s no surprise that after years of shrinking self-driving cars, tech companies are seriously stepping up their businesses and investments.
Self-driving cars are only as good as the human drivers they learn from – so the people who teach these systems have to be excellent drivers themselves.
In recent months, Apple has prioritized the “Apple car” plans after previously focusing on creating an autonomous driving system, Bloomberg reported. This has fueled intense speculation about which automakers and vendors the company behind the iPhone can partner with to achieve its vision. While Apple recently lost several senior executives on the project, it still has hundreds of engineers in its largest automotive group.
There’s also Waymo, who is in talks to raise up to $ 4 billion to speed up his efforts. Founded in 2009, the company that was previously Google’s self-driving car project was the first to offer fully autonomous driving on public roads. It became an independent company in 2017 under the direction of Google’s parent company Alphabet Inc., launched a self-driving rideshare service in Phoenix in 2018 and last year began testing self-driving trucks in New Mexico and in Texas.
Microsoft is also supporting several autonomous initiatives, partnering with Volkswagen on autonomous car software, possibly with a view to creating mobile offices.
Amazon.com, meanwhile, backed Rivian Automotive Inc., which makes electric trucks, and last year bought driverless startup Zoox Inc. It might consider including self-driving rides as part of its membership program. Premium.
“Each of these companies, including Facebook, wants to be a part, or even control and dominate, every part of the lives of citizens,” said Professor Raj Rajkumar, who heads the Institute of Robotics at Carnegie Mellon University. “From their business perspective, if you don’t, someone else can and probably will, and eventually your current area of influence will disappear. “
Although Apple has dominated phones, tablets, and smartwatches, and has waged a decent fight against computers over the past few decades, it has lagged behind in the areas of artificial intelligence, voice, and communications. smart speakers, areas now led by Google and Amazon.
The company would benefit from the release of a revolutionary new product. While it has enjoyed success with the watch, released in 2015, and services like Apple TV, Apple Arcade and Apple Music, which are now a major new source of revenue, nothing has come close to the success of the iPhone. , which redefined entire industries and became Apple’s most lucrative product since its release in 2007.
At Google, executives have long viewed investments in self-driving cars, as well as biotech and drone projects, as risks that venture capitalists and less wealthy companies do not or will not take. Waymo discussed potential business models around taxi services and long-haul logistics.
The assault has incumbent auto operators ready to fight. Industry titans such as Ford, General Motors, and Toyota have stepped up their own rival self-driving efforts. Japanese automaker is building entire city around autonomous driving at the foot of Mount Fuji while South Korean company Hyundai Motor Co. commits $ 7.4 billion to build electric vehicles in the United States and develop flying taxis unmanned.
In China, the biggest tech companies are throwing their hats in the ring. Giants from Huawei Technologies Co. to Baidu Inc. have pledged nearly $ 19 billion in electric and autonomous vehicle projects this year alone. Smartphone giant Xiaomi Corp. and even Apple’s Taiwanese manufacturing partner Foxconn have joined the fray, forging ties and unveiling their own auto-manufacturing plans.
Automakers defending their territory are understandable, but Takehito Sumikawa, partner at McKinsey & Co.’s Tokyo office, which advises on future mobility, says it’s a “natural extension” for tech providers to step into. autonomous driving space. “They are betting they can do a better job of disrupting the industry.”
Existing companies at Amazon, Apple, and Google are already forcing them to master AI, manage massive amounts of data, and design complex systems. Essentially, they made the initial investment in the basic technologies needed to design and build driverless cars, and now they have legions of engineers keen to solve more complex problems, not to mention an appetite for disruption. .
But perhaps one of the clearest examples of a tech company with the ability to change its own playing field is Amazon. The online retailer would benefit tremendously from lower home parcel delivery costs using self-driving cars.
Amazon is also used to turning its own tools into businesses that can be sold to a wider range of customers, much like it has done with cloud computing, which was originally created to support the company’s online retail operations. After turning it into a computing and data storage platform used by Netflix Inc., the U.S. government, and others, Amazon Web Services is now a $ 45.4 billion company.
As the coronavirus pandemic temporarily dampened consumers’ appetites for new cars, demand has roared. A semiconductor shortage means that many traditional players cannot get production lines moving fast enough. This year alone, the global auto market is expected to rebound 9.7% to $ 2.7 trillion, according to IBIS World.
“Even for companies like Apple and Google, this is a huge market,” Rajkumar said. “CFOs and CEOs are literally drooling because the early entrants are likely to have a major advantage. Each of these companies wants to be the predator, not the prey. “