Earlier this week, it came out that Apple was kicking the tires on buying an existing stake in McLaren, a British automotive company best known for making million-dollar supercars.
A ton of Apple observers and stakeholders are taking this news as evidence that Apple knows it doesn’t have the expertise to manufacture a car, and is looking for a automotive partner to help it build factories and a supply chain.
Here’s two reasons why that’s wrong.
- Apple doesn’t actually do much manufacturing today. It contracts with firms like Foxconn and Pegatron to build its iPhones and Macs — and people don’t think Foxconn is an Apple M&A target.
- McLaren builds its cars by hand. Apple products are built at scale. A former Apple engineer currently in the automotive industry told Business Insider recently that Apple wouldn’t be interested in a production process with lots of individual hands-on work.
What’s most likely if Apple does decide to build a car is that it will need a key manufacturing partner — several, actually.
Apple will need the automotive equivalent of Samsung or Foxconn to build its car. It will need suppliers to provide things like electric motors, electronic components, and assembly services. And it will need those parts in high volume.
Apple could dip into some of its over $200 billion in cash to start the process. In the past, Apple has spent generously to build facilities to lease back to its key suppliers, which might not have had the capital to build the factories on their own. It’s also reportedly financed facilities for companies that make key components for the iPhone.
So who might Apple work with? Morgan Stanley recently distributed a list of 30 companies that it thinks is best positioned to take advantage of the coming electric and driverless car waves — the same waves it looks like Apple is looking to ride.
Here are a few companies that Apple might need to work with to build a car:
Magna is the name that comes up most often when discussing Apple’s car project, and for good reason. Magna is the world’s largest contract manufacturer of vehicles, using its plants to make cars to specifications for brands like BMW and Mini.
Magna is reportedly already working with Apple, according to a new feature in Bloomberg about the Canadian-headquartered company. About a dozen Magna engineers are working with Apple in its secretive Sunnyvale, California car facilities.
“We believe Magna-Steyr is in a singular position to help new entrants who may want to ‘make’ their own cars by playing a similar role to what Foxconn does today for Apple in the smartphone industry,” Morgan Stanley advises.
Magna could easily be Apple’s “Tier-1” partner.
Mobileye has been in the headlines recently because the company is publicly feuding with its former customer, Tesla, and its famous CEO, Elon Musk.
But the spat underlines the fact that Mobileye is a key player in the hardware and software powering autonomous driving features on the road today.
Morgan Stanley describes it as a “primarily software-driven business model specializing in proprietary algorithms for vision systems for cars.” It’s a “Tier-2 supplier,” which means it would supply parts to the OEM that would assemble the final product, and Morgan Stanley says it has “few, if any, direct peers.”
Mobileye says it has 80% of the auto vision market. Apple might make its own computer vision software, but there’s a chance it decides what Mobileye is offering off-the-shelf is just as good and perhaps better.
Delphi is a British company that makes automotive parts. Lots of automotive parts. It’s a massive company that has 161,000 employees.
If cars to go an OEM-driven business model where much of the value is captured by software and design firms like Apple or Google, Delphi could be a big winner. “Delphi is one of the few global suppliers that can leverage secular technological shifts in the auto industry to become a ‘mega supplier,'” writes Morgan Stanley.
The company “stands to benefit significantly from the emergence of fully outsourced business models of OEMs, driven by … importance of software in vehicles,” the note continues.
Someone’s going to need to build brakes and suspensions for Apple’s car, and Delphi is certainly a possibility.
NXP Semiconductors and Nvidia
Someone’s going to have to design and make the car computers that collect data from all the sensors a self-driving car is equipped with — the cameras, the radar, and the LIDAR.
NXP Semiconductors is one of the leaders in this field, along with Nvidia, a company best known for making graphics cards for gamers. NXP says “four of the world’s top five automakers” are using its chips.
However, there’s a good chance that Apple will want to design its own car computer, after all, designing silicon is one of Apple’s deepest strengths.
But to get there, there’s always the possibility that Apple will buy a chip company to kickstart its division, like it did with P.A. Semi in 2008.
It just makes sense! Tesla makes an Apple-inspired electric car, but is short on money. Apple wants to make an Apple-style electric car, and has piles of money.
Apple probably wouldn’t invest in Tesla. But it could buying it. The purchase would mean that Apple would buy Tesla’s factories, which is something it might be reluctant to do. But Apple could find a use for the Tesla factory in Fremont, California.
Unless there’s a patent that Apple hasn’t revealed, it’s not building its own electric motors. German electronics giant Bosch makes electric motors, and Apple has poached Bosch automotive engineers in the past.
Especially with the rumours that Apple is doing a lot of its car operations in a base in Germany, it makes sense that Apple would look to an electric motor supplier based in Germany. Autocar fingers Bosch and ZF as possibilities.
Samsung is one of Apple’s key supplier for the iPhone and iPad — it fabricates Apple’s chips, makes some of Apple’s displays, and may make even more of Apple’s displays next year.
Although Morgan Stanley doesn’t say Samsung is one of its target companies for electric cars, it’s been making moves so that it can be a major supplier for auto parts. Earlier this year, Bloomberg reported that Samsung was in talks to buy Fiat’s auto-parts unit, Magneti Marelli, which makes lighting, in-car entertainment and telematics systems.
The deal hasn’t been confirmed yet, but Samsung has made no secret about its desire to become an auto parts giant. It has a team that’s working on components and autonomous driving, and last year it bought a big stake in a Chinese electric car company.
The road to the Apple Car might end up going straight through Samsung.