Apple still searching for road to victory with car project

Apple's multibillion-dollar investment in its new campus has been well documented: camera drones fly over the construction site of the circular building, which was designed by Sir Norman Foster alongside Apple's late co-founder Steve Jobs.

Rather less is known, however, about the Apple facilities scattered around the Silicon Valley suburb of Sunnyvale. Just ten minutes' drive from Apple's current Cupertino headquarters, Apple has leased several offices and warehouses around Sunnyvale, according to city filings covered by local news reports, including a former Pepsi Cola bottling plant on five acres of land. This network of properties is said to be home to Apple's secretive automotive R&D labs.

Neighbours of one such site report “nonstop” security patrols around the buildings, which are lined with cameras and bear no external indication that the tenant is the world’s most valuable company. But people who work on the same street are in no doubt that Apple employees work behind the frosted glass windows: the company has been trying to push out other nearby tenants so that it can have the whole area to itself.

One neighbour describes a procession of expensive cars, including Teslas and Lamborghinis, being delivered on trucks and whisked behind the high wooden fences erected between Apple’s buildings.

However, the same neighbour adds that recently it has become easier to find places to park in the area - something he attributes to lay-offs within the Apple car team.

Departures

Dozens of people have left the car project since Apple veteran Bob Mansfield took over leadership of the unit this summer, people close to the company said. While some have been reassigned to other Apple teams, other poached from car companies have left altogether.

Since January's departure of Steve Zadesky, the original leader of what is known as Project Titan, people both inside and outside Apple have raised questions about the progress in those low-profile Sunnyvale facilities.

When news of Apple's intention to build a car broke in early 2015, it sent shivers across the automotive industry. Now, however, the threat from not only Apple but also Google seems less immediate.

At the same time as Apple is said to be refocusing its efforts on the underlying systems of an autonomous vehicle, Google has lost many of the top engineers in its self-driving car unit, which despite several years in development was beaten to launching a US driverless taxi service earlier this month by Uber in Pittsburgh.

This week, it emerged that Apple had approached McLaren Technology Group, the British supercar engineer and Formula 1 team owner, about a potential investment or acquisition over the summer. While McLaren has denied that any talks are still in progress, the news follows reports in the German press that Apple had previously tried to strike partnerships with BMW and Daimler.

Traditional automakers might be comforted that Apple felt unable to break into their industry without the help of an established manufacturer - albeit the maker of expensive sports cars.

Ripe for disruption

Nonetheless, in Silicon Valley, the car market is seen as ripe for disruption. "The analogies between what happened to the phone industry and what is going to happen to cars are very close at every piece of the value chain," says Benedict Evans, a partner at venture capital firm Andreessen Horowitz.

“The differentiation became the design and then all the value moved into software.”

Even as it is rethinking its strategy, Apple’s commitment to entering the automotive industry seems undiminished. Its annual R&D budget has doubled to $10 billion (€8.9 billion) in the three years since Project Titan started hiring hundreds of employees.

“Something has changed but I don’t think there is a lack of interest in the car business at Apple,” says Horace Dediu, a tech industry analyst who writes at his site Asymco.

As the McLaren talks highlight, in one key respect Apple is approaching the car project differently to the development of the iPhone.

“Steve Jobs made an unusual directive that Apple didn’t look outside for talent,” says Neil Cybart, an Apple analyst at Above Avalon.

“They were primarily able to do it because it wasn’t a huge jump to go from the Mac to the iPod to the iPhone. But you can’t take an iPhone person and say, ‘go make a car’.”

Yet there are also parallels between the two projects in the chaos lurking beneath Apple's well-polished surface. During the iPhone's genesis leading up to its 2007 launch, Tony Fadell, the former Apple executive who is often described as the "godfather of the iPod", clashed with its then software chief Scott Forstall. After his concept for the iPhone was sidelined, Mr Fadell eventually left in 2010 to found smart-home company Nest Labs, while Mr Forstall led development of iOS until he departed in 2012.

‘A mess’

“If you look deeper into the iPhone development, it was a mess,” says Mr Cybart. “If you chronicled it month-to-month, it would be a disaster all the way to launch. I’m not expecting Project Titan to be nice and neat.”

Even if Apple has struggled to find a willing automotive partner in Europe, Mr Dediu suggests that it could look to China, which assembles 20 million cars a year - twice as many as US automakers.

In May, Apple invested $1 billion in Didi Chuxing, the Chinese ride-hailing service. Apple could also recreate its relationship with Foxconn, which makes the iPhone, for automotive manufacturing at a much larger scale than McLaren’s existing processes.

“Maybe the logic of building everything themselves is not going to be viable because things are moving so fast” in electric and autonomous vehicles, Mr Dediu says. “The cleverest thing would be to work with a partner in China to give manufacturing for vehicles the same flexibility and scale as the iPhone. That would be truly novel.”

Copyright The Financial Times Limited 2016