Apple is close to finalizing an agreement with Hyundai-Kia to manufacture an Apple-branded autonomous electric vehicle at the Kia assembly plant in West Point, Georgia, after years of rumors that it would eventually get into the auto industry with its own vehicle, according to several sources who briefed CNBC on the proposal.  

 


 

"Apple Car" which is being designed by an Apple team, is tentatively scheduled to go into production in 2024, although people who are familiar with the talks between Apple and Hyundai-Kia say it may push back the eventual rollout.  

Sources tell CNBC that no agreement between the two businesses has yet been reached. Furthermore, they emphasize that Apple may eventually decide to partner separately or in addition to working with Hyundai with another automaker.

One source familiar with Apple's strategy on developing a car tells CNBC, "I doubt Hyundai is the only automaker they could strike a deal with, there could be somebody else."

After hours on the news, Apple shares grew more than 2 percent.

When contacted by CNBC, spokespersons for both Apple and Hyundai-Kia refused to comment.

If an agreement is finalized, why will Hyundai-Kia be chosen by Apple? Just as importantly, why would the Korean car producer sign an agreement with Apple?


 

Many familiar with the discussions suggest that each company sees a unique advantage in collaborating to create an Apple car. 

The decision to create a car opens up the opportunity for Apple to reach a $10 trillion global demand for vehicles and mobility. In a research note that released in January, Morgan Stanley analyst Katie Huberty clarified the profit potential for Apple.

"Smartphones are a $500bn annual TAM. Apple has about one-third of this market. The mobility market is $10 trillion. So Apple would only need a 2% share of this market to be the size of their iPhone business," Huberty wrote. 

The software maker wants to create the "Apple Car" in North America with an established automaker willing to allow Apple to manage software and hardware to get into the vehicle.    

By partnering with Apple, Hyundai-Kia leaders believe they can speed up the production of their own autonomous plans for electric vehicles. In a joint venture developing autonomous vehicle technology, including robotaxis, Hyundai is currently working with Aptiv.


 

"The first Apple Cars will not be designed to have a driver," said one source with knowledge of the current plan. "These will be autonomous, electric vehicles designed to operate without a driver and focused on the last mile." That could mean Apple cars, at least initially, could focus on package food delivery operations and firms incorporating robotaxis.

The step could bring the tech giant into direct competition with Tesla, which is rolling out its vehicles with self-driving features. Recently, Tesla CEO Elon Musk told investors that converting Teslas into self-driving robotic taxis could help justify the valuation of the firm, as the vehicles will be in operation for more hours a day, enabling Tesla to earn higher revenues per car. Apple brought Doug Field, then senior engineering vice president of Tesla, back to Apple in 2018, where he had previously worked, possibly to work on self-driving cars.

Apple also hired several other former workers from Tesla, including the now Senior Engineering Manager of the Apple Special Project Group and former Tesla Vice President of Engineering. Apple also has recruited a number of Tesla employees.

Musk said he once tried to start talks with Apple about acquiring his electric car business, but Tim Cook, CEO of Apple, declined his meeting invitation.

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Hyundai Motor Company and Kia Motors Corporation announced today that they have developed the world’s first predictive Information and Communication Technology (ICT) Connected Shift System, enabling the vehicle to automatically shift to the optimal gear after identifying the road and traffic conditions ahead. Hyundai and Kia plan to apply the technology to future vehicles. During system development, the companies filed about 40 major patents in South Korea and abroad.

While the technologies used to automatically shift depend on drivers’ preferences, such as Smart Drive Mode – available on most current Hyundai and Kia models – ICT Connected Shift System is the first ICT to automatically shift the gear according to road and traffic conditions.

ICT Connected Shift System uses intelligent software in the Transmission Control Unit (TCU) that collects and interprets real-time input from underlying technologies, including 3D navigation equipped with a precise map of the road as well as cameras and radar for smart cruise control. The 3D navigation input includes elevation, gradient, curvature and a variety of road events as well as current traffic conditions. Radar detects the speed and distance between the vehicle and others, and a forward-looking camera provides lane information.

Using all of these inputs, the TCU predicts the optimal shift scenario for real-time driving situations through an artificial intelligence algorithm and shifts the gears accordingly. For example, when a relatively long slow down is expected and radar detects no speed irregularities with the car ahead, the transmission clutch temporarily switches to neutral mode to improve fuel efficiency.

When Hyundai and Kia tested a vehicle with an ICT Connected Shift System on a heavily curved road, the frequency of shifts in cornering was reduced by approximately 43 percent compared to vehicles without the system. Accordingly, the system also reduced the frequency of brake operation by approximately 11 percent, thereby minimizing driving fatigue and brake wear.

When rapid acceleration was required to enter a highway, the driving mode automatically switched to Sport Mode at the merge, making it easier to join the traffic flow. After merging with traffic, the vehicle automatically returned to its original driving mode, enabling safe and efficient driving.

In addition, the engine brakes were automatically applied upon release of the accelerator pedal by determining speed bumps, downhill slopes and location of the speed limit change on the road. The changes in distance from the front car were detected by the front radar to adjust appropriate transmission gear automatically, which improved driving quality.

The system is also in line with autonomous technology, which is developing day by day. The ICT Connected Shift System will deliver both improved fuel efficiency and stable driving experience in the era of autonomous vehicles by providing improved performance in response to real-time road and traffic conditions.

Hyundai and Kia are planning to further develop the ICT Connected Shift System into an even more intelligent transmission technology that can communicate with traffic signals based on LTE or 5G communication and identify drivers’ tendencies, resulting in further refinement of gear-shift control.

“Vehicles are evolving beyond simple mobility devices into smart mobility solutions,” said Byeong Wook Jeon, Head of Intelligent Drivetrain Control Research Lab. “Even a traditional area of the automobile, such as the powertrain, is becoming a high-tech technology optimized for smart mobility through efforts to integrate ICT and artificial intelligence technologies.”

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Apple, the world pioneer in information technology, is highly likely to get into the automotive market. The American company is currently planning to use a business model similar to its iPhone output to build self-driving electric vehicles produced by an automaker under a tie-up agreement. 

A potential Apple Car is believed to have an impact on the automotive industry's competitive environment.

 

Following stories by Reuters and Taiwanese news media on Apple's potential entrance into the auto industry, U.S. and Chinese high-technology companies' share prices shifted uphill.

In the US, strong investor interest has been attracted by companies such as Velodyne LiDar, a manufacturer of light detection and ranging (lidar) sensors that serve as the "eyes" of self-driving cars. In China, investors rushed to the world's largest electric vehicle battery maker, Contemporary Amperex Manufacturing, and other suppliers of EV-related components.

An Apple Car will be a "collection" of high technology, said analysts at American and European auto market research firms, indicating that it is possible to shift suppliers of key automotive components.

Through the use of smartphone creation and manufacturing know-how to build automobiles and through the horizontal division of production, the Apple EV project is expected to have a more serious impact on the car industry. Though outsourcing manufacturing to businesses such as Hon Hai Precision Industry, a top Taiwanese electronics contract manufacturer, Apple will likely concentrate entirely on designing vehicles.

Apple is expected to commit itself, as in the case of iPhones, to overall design work, including self-driving technology, while outsourcing manufacturing. The strategy is likely to shake the current vertical integration business model of the auto industry, in which carmakers participate in the entire process from concept to production.

In China's auto market, the horizontal division of labor is already progressing. Baidu, a top Chinese internet company leading the development of self-driving technology, revealed on Monday that it would manufacture EVs on an original-equipment-manufacturing basis with Zhejiang Geely Holding Group, a major automaker in China.

Magna International, a leading Canadian supplier of automobile parts that has progressed on behalf of car manufacturers to produce vehicles, is seen as a leading contender for producing the Apple Car. Allegedly, Taiwan's Foxconn, which has collaborated with Apple in the development of smartphones, also wants to win the contract.

The Apple initiative has gained attention from automakers as well. South Korea's Hyundai Motor said Friday that it is in early talks with Apple over a tie-up to create an EV. If obtained, a large order for the manufacture of the vehicle would likely allow Hyundai to increase its capacity utilization rate and stabilize earnings.

But the project may threaten the dominance of carmakers at the top of the sector. An executive at a major Japanese carmaker cautioned that automakers can "become Apple's subcontractors and lose their originality."

On behalf of Didi, BYD agreed to manufacture EVs because it can expect to benefit by growing performance, an analyst from the auto industry said. 

Although Asian businesses are beginning to move in an effort to capitalize on the Apple Car project, the question is whether Japanese companies are ready for it. 

As in the case of smartphones and consumer electronics, there remains fear that Japanese companies will lose the initiative to Chinese and South Korean rivals.
 

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