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24 June


Obsession with secrecy and domineering style hitting Apple's car business

Apple may possess key technologies in software, it does not have the expertise nor the supply chains to manufacture cars

Photo: Global Look Press

/NOVOSTIVL/Apple has long been seeking to enter the car industry, but its culture of secrecy and its domineering presence over subcontractors appear to be holding it back from striking key partnerships to enable this to happen.

These factors are seen as being behind halted talks with major carmakers for an autonomous electric vehicle (EV) Apple is apparently envisioning.

Former employees have referred to Apple's obsession with secrecy as being almost cult-like. Hyundai Motor's affiliate Kia had been in talks with the iPhone designer, with various reports saying the entities were nearing a deal, but Hyundai also said earlier this month that it was not in discussions on developing Apple's so-called "i-Car." The talks are seen to have fallen apart due to Apple's apparent discomfort concerning alleged secrecy violations over the potential manufacturing deal.

But recent remarks by Nissan's chief imply that there are more things holding back carmakers from forming a tie-up with the tech giant. Apple is known to have approached the Japanese carmaker, but the "brief" talks failed due to what Nissan referred to as "branding" issues.

Nissan CEO Ashwanti Gupta implied the carmaker wants the upper hand in the development of any potential new vehicle. Apple is seen to have wanted to design, market and sell the future car while having the carmaker simply assemble it, something that Nissan apparently would not agree to do.

Apple has immense brand power driven by global fandom for its sophisticated designs, and partnering firms have dared not ruffle its feathers given its power and industry status.

Manufacturers have followed Apple's proposals despite tight margins, as entering the company's supply chain was considered a test for superior technology. This situation has enabled the tech company to make unilateral demands that subcontractors have been forced to agree to.

"Apple is known for tight management of its branding. And unless contract manufacturers make fat profit margins, partnerships have not been beneficial for them in many cases," an industry source said.

The company is known to have notified Samsung Display ― which supplies OLED panels for iPhones ― that it would delete the section in their contract that states it will compensate for unsold supplies if there is an oversupply situation. Samsung Display declined to comment.

Another industry source said, "Apple is a tough business client, because it requires a lot from suppliers."

As for telecom companies that have a sales channel for Apple's handsets, the Cupertino-based firm has been making SKT, KT and LG Uplus pay for expenses related to iPhone TV ads, although it does add the mobile carriers' logos at the end of each.

"Apple is the only smartphone manufacturer that requires telecom firms to shoulder 100 percent of its advertising expenses. In other cases, the costs are shared between the manufacturer and telecom firm," an industry official said. Apple has also had the mobile carriers here bear the cost for repairing faulty handsets.

This situation has led to an investigation by an antitrust watchdog, to which Apple pledged to create a 100 billion won fund partially subsidizing customers for repair fees and supporting research and development for small businesses. Mobile carriers say this does not do anything regarding the ad expenses, as the tech giant did not make any specific comments regarding these.

"Apple has a superior position when it comes to these types of contracts, based on its selling power," the source said.

But conditions for developing a future vehicle appear less favorable for Apple than for car manufacturers that already possess the capability to produce EVs. Given their standing, car manufacturers appear to have few concerns about Apple's planned vehicle.

Volkswagen CEO Herbert Diess was cited by media as saying that the automotive group was "not afraid of Apple," given the fact that the car business takes time to set up.

Moreover, given any prospective deal between automakers and Apple will likely end up as them becoming mere subcontractors with the latter not sharing its technology or R&D results, there appears to be no compelling reason for car manufacturers to enter into any partnership.

Hyundai Motor is set to focus on its own EVs. Hyundai's original E-GMP EV platform is a key strength it possesses, along with Hyundai-Kia's EV supply chain. Hyundai has a production capacity of 7 million vehicles a year.

Apple established its presence in the global smartphone market because it set up an ecosystem that did not previously exist. The situation for future cars is different because existing carmakers hold the advantage in this aspect.

Observers note that Apple will need to partner with an established carmaker to be able to launch its envisioned self-driving EV. This is because, while Apple may possess key technologies in software, it does not have the expertise nor the supply chains to manufacture cars. This latter area is where carmakers come in, but given the fact that some of the major manufacturers have been in business for over a century, it appears unlikely they will be willing to be relegated to being subcontractors simply assembling Apple vehicles.

Smart cars are set to have the same impact as smartphones, based on forecasts of explosive growth in the market for EVs and self-driving vehicles. Apple, meanwhile, appears to be locked in a dilemma between the marketability of future vehicles and its wish to maintain its dominant status in any partnership.