Meaningful Contribution

Meaningful Contribution by Horace Dediu at Asymco:

“The global market is forecast to reach 88.6 million vehicles in 2015 and there are many ways to segment it.”

Dediu considers Apple’s entry into the auto industry. Round this number out and you’ve got 90m. Five percent of that is less than 5m cars. Apple sold over 10m phones in the past weekend, and while far fewer people in the world buy cars than a smartphones, is it that difficult to imagine a car, “Designed by Apple in California,” selling to five million people?

Dediu goes on:

“To break into the top 10 brands would imply a production volume of at least 2.5 million units (about the same as Daimler ships today.) At 2.65 million and a price of $55k/vehicle Apple’s revenues from cars would total about $145 billion. This is roughly the sales value of the iPhone business today. Not bad.”

Not bad indeed. The luxury ethos of Apple products makes a brand like Daimler (Mercedes Benz) an apt comparison. In this scenario, Apple develops a business with equivalent financial value as the iPhone, which it certainly needs as the smartphone market marches closer to saturation. Additionally, the iPhone Upgrade Program that’s just now beginning may provide a successful mechanism for getting Apple’s premium products into the hands of people who would otherwise not make such a high priced purchase. It’s easy to envision them using a similar mechanism for car ownership; Apple is far and away a safe enough guarantee for a partner bank to underwrite automobile lease agreements.

What happens though if Apple is more interested in a larger share of the automobile market?

There aren’t nearly as many Daimler cars in circulation than cars from say, Toyota. So what if the average sale price of an Apple car is closer to $25,000 than $55,000? Sure, the revenue potential takes a hit, but the result would be a significantly larger percentage of the auto market. This would give Apple an opportunity for greater impact on how human beings relate to automobiles, which is arguably more the company’s raison d’être than making money.

Either way it’s becoming painfully obvious that when the engineering challenges are inevitably conquered, the question of whether the market will be interested in buying a car from Apple is already answered.