Apple car has pitfalls but leverages competency

SAN FRANCISCO – The Apple Car debate couldn't be more polarizing.

On the one hand, rumors that the $700-billion personal tech giant may be getting into the automotive manufacturing business causes vigorous head scratching.

On the other, the prospect of an iCar by 2020 syncs perfectly with the world-dominating vision of a company that redefined the way we think about music players, smartphones, tablets and soon watches.

So why not cars, too? Put simply, it's the shark scenario: keep swimming forward or die.

"If you're Apple, your greatest fear is missing out on what's next," says Alan Deutschman, author of The Second Coming of Steve Jobs. "With all the talk swirling around Google and even Uber (getting into autonomous cars), it's clear that the public can see the appeal of high-tech cars, and Apple wants a part of that."

If you missed last week's maelstrom of speculation, it boils down to a variety of anonymously sourced reports that leaned on LinkedIn data about Apple hires from companies such as Tesla, as well as a lawsuit brought by battery-maker A123 that Apple has been poaching its top talent.

Voices from the automotive world quickly raised the specter of ambitious but failed runs at starting car companies from scratch, most famously Henrik Fisker, John DeLorean and Preston Tucker.

Former General Motors Vice Chairman Bob Lutz noted not only the enormous capital required for such efforts, but also the industry's notoriously slim profit margins. "Why would (Apple) exit (tech) to go into a business where in good times you may have a 5% or 6% margin and in bad times you hemorrhage money," he told CNBC.

That sentiment was echoed by James Albertine of brokerage house Stifel, who in a note to investors Friday asked, "has the public forgotten how difficult it is to create a start-up, high-volume automotive manufacturer?"

Albertine went on to list the various state and regulatory obstacles stateside "not to mention the structural – right-hand vs. left-hand drive – hurdles globally." He concluded by saying that if Apple intended to forge ahead simply on the strength of its bankroll, "we recommend investors prepare to endure a much longer payback period."

If Apple were to move forward, chances are it would dive into making an electric vehicle (like Tesla), but it's unclear if it would take on the considerable challenge of making that EV self-driving (like Google).

Tesla for one offers a few cautionary tales. The brainchild of maverick CEO Elon Musk, the automaker has "burned through tons and tons of money (over 10 years), and they sold 35,000 cars last year," says John O'Dell, senior editor for advanced technology cars at Edmunds.com. With Apple's mass-market appetites, "they're not going to be happy selling 20,000 to 30,000 EVs a year."

Could Apple leap in quickly by buying Tesla, currently valued at $25 billion? Sure, but, says William Kreher, technology analyst at Edward Jones, "that's inconsistent with Tim Cook's philosophy towards acquisition," which has leaned toward lesser price points such as its $3 billion purchase of Beats Electronics last year.

But while Kreher also lists the obvious pitfalls in pursuing an automotive product, he admits "there's a natural extension to autos" for the Cupertino-based company.

"There's a need for strong software in the auto industry and there is potential for a company like Apple to use its cloud and ecosystem," he says. "The could go from making products costing up to $2,000 to $40,000."

What's more, anyone in the high-tech space should almost see it as their obligation to get deeply involved in a product that represents the single biggest household expense after the house itself, says Thilo Koslowski, vice president and automotive practice leader with tech advisors Gartner Inc.

"Cars are the ultimate mobile device, and anyone that's in technology should get more serious about this space," says Koslowski, noting that the automobile has ceased to be defined as a mechanical device and is now viewed "as a software and IT-designed machine that happens to have four wheels."

Koslowski sketches out a near future where perhaps fleets of sleekly designed and likely autonomous cars pick up and drop off passengers in dense urban centers. If that comes to pass, traditional automakers such as Ford and GM will be competing for those contracts with the likes of Google and Apple. Or collaborating.

"While these rumors of Apple building a car seem inconsistent with a lot of things we know about the company, on the other had they love going after projects that really disrupt the market, so who knows," he says.

Longtime Silicon Valley futurist Paul Saffo is convinced an Apple car fits in squarely with the company's ethos and track record of perfecting what amount to rough drafts brought forth by other companies, as it did with the iPod, iPhone, iPad and soon Watch.

"Companies that are endlessly successful tend to move into the white space adjacencies they know well, and Apple is a master at that," says Saffo. "What you're dealing with here is simply a new class of device, and it just happens to look like a car."

Saffo says two things are key to successfully innovating in spaces that don't appear to be core competencies. One is passion, and the other is having what he calls a reverse gear.

"You've got to know when to get out, and Apple will abandon this if they can't make it work," he says. "But even more important is being fully committed to the idea. Take Microsoft. They weren't really passionate about the Internet because they were so committed to standalone machines. And so their efforts left them flat."

Apple has another arrow in its quiver when it comes to taking a shot at a best-selling car, and his name is Jony Ive. The company's design chief has helped engineer hit after personal-tech hit, and his touch could hark back to a golden age when designers such as Harley Earl and Raymond Loewy lured people into machines.

"You just say the word design, and for many people that's Apple," says Saffo.

Apple chronicler Deutschman begs to differ, offering the other side of that optimistic coin.

"Just because you're great at design, doesn't mean you're great at designing everything," he says. "When Steve Jobs returned, the company reinvented itself by going back to its roots and DNA, not trying something new."

So there things sit until either more rumors prove true or Apple officials divulge what they're up to. It's a safe bet the company has a good number of people poking around in the automotive space, but who doesn't these days. Even Uber is looking into self-driving cars with robotics experts at Carnegie Mellon University.

About the only thing one can count on from Apple CEO Tim Cook is that if the company's ever ready to unveil a car, it will have to meet the Jobs mandate and be "insanely great."

Della Cava reported from San Francisco, Woodyard from Los Angeles