Monthly Archives: February 2015

Apple & Cars

So the latest rumor this week is that Apple is going to develop a car. They’re hiring automotive designers and engineers. Yes, it would be totally awesome if Apple came out with a car, and it kicked GM/Ford/Chrysler’s asses the same way the iPhone kicked Microsoft and Blackberry’s asses.

But can Apple fix any of the issues that currently face electric vehicles? Or will they just be a slightly different $100,000 Tesla, splitting the market that is not really that big in the first place?

Batteries

As I’ve discussed before, the batteries in the new iPhones rival the batteries in Tesla’s Model S in some aspects, but fall behind in others. The six critical battery parameters are:

  • Cycle life: number of full battery charge/discharge cycles to 80% of its original capacity
  • Volumetric Energy Density: number of watt-hours of energy the battery can store per unit volume, usually measured in watt-hours per liter (Wh/l)
  • Gravimetric Energy Density: number of watt-hours of energy the battery can store per unit of mass, usually measured in watt-hours per kilogram (Wh/kg)
  • Power: the ability of the battery to generate or accept power, measured using rate-capacity defined as the C-rate – 1C is charging or discharging the battery in one hour, 0.5C is two hours, 2C is 30 minutes, and 10C is 6 minutes
  • Safety: how much torture can the battery withstand before it becomes a danger to the people around it
  • Cost: the price per usable kWh of battery capacity for the vehicle

Assuming the 1,000 cycle life promise Apple made when it went to sealed batteries is still true, that would provide for a long lifetime (for a 200 mile EV, 1,000 cycles to 80% yields about 180,000 miles on the pack before it only gets about 160 miles per charge).

The iPhone 6 and 6 Plus battery’s energy densities are quite good – 250Wh/kg and 575 Wh/l. The battery cells in the Tesla Model S are around 250Wh/kg and 700Wh/l. This means Apple’s equivalent batteries would weight the same, but take up 22% more space – this is a difficult thing to overcome, so Apple would need to be very creative on how they can come up with more space to store the battery pack relative to Tesla’s battery pack.

The power output of the current iPhone batteries is unknown, rate capacity generally isn’t an issue for batteries in small consumer electronics. The iPhone and iPad batteries can usually recharge in about 1 to 2 hours, which indicates a C-rate of 1C. Batteries for EVs generally need a C-rate of 2C to support fast chargings and highway speeds in all conditions (rain, snow, headwinds, etc.).

Apple’s batteries are generally safe. The lithium polymer cells are a lot safer than the NCA chemistry used in the Tesla Model S.

Finally cost, Apple and Tesla produce roughly on the same scale now (see below) but Tesla has a much more aggressive ramp planned for battery production than Apple does. And the lead time on building new battery manufacturing capacity is pretty long.

Quantities, Oh God The Mass Quantities, of Batteries

Next I wanted to figure out how many kWh of batteries Apple sold in 2014. This is pretty difficult because Apple’s phone models have different cell sizes: 5/5S/5C varied between 5.45 and 5.96Wh, the 6 has 6.91Wh, the 6 Plus has 11.1Wh. So beyond that, the mix of how many phones sold is unknown, so thats another estimation we have to factor in.

Lets assume that for the first three quarters of 2014 (no iPhone 6/6 Plus), the average battery size per phone sold was 5.7Wh, and in the final quarter the average battery size was 6.5Wh. In the first three quarters they sold 118M iPhones, and in the insane fourth quarter they sold about 75M iPhones (mix of 5-series and 6-series phones). This results in 672 MWh of batteries sold in the first three quarters and 487 MWh of cells sold in the final quarter, for an iPhone total of 1,159 MWh of cells, or just over a gigawatt-hour of energy storage devices.

The iPad sold 63.35M units. We can judge from the average selling price of around $420, that a lot more iPad minis are being sold than traditional, larger iPads. If we assume that the mix is 4 mini iPads to 1 large iPad (either last gen or current gen), then the average battery capacity was 25Wh, which is a total of 1,583 MWh of batteries.

This brings us to an approximate total of 2.75 GWh of battery cells produced by Apple for just the iPad and iPhone line. This doesn’t include the batteries used in the iPod or in Mac laptops. Estimating the mixes and volumes of laptops and iPods is beyond my expertise at this moment.

Meanwhile, Tesla sold 31,600 or so cars. If the average unit battery capacity was 75kWh (3 85kWh units for every 2 60kWh units sold), that would yield about 2,370 MWh, or 2.37 gigawatt-hours. For comparison, the Gigafactory will be able to produce 35 GWh of batteries.

It is safe to say that Apple uses more batteries than Tesla in 2014. However, that may change in 2015, as Tesla will try to grow their overall production by 70%, increasing their total annual usage to about 4 gigawatt-hours. Apple, with iPad sales flattening or even declining, likely will not see a 45% increase in battery cell usage to keep up with Tesla.

(the logistics and supply chain people at Apple really do the Lord’s work, hats off to them)

Design & Engineering

I have no doubt Apple’s design team would have a field day with an Apple-mobile. I just hope its as practical as it is beautiful. One of the recent thoughts that has caught my attention is that the value in the car itself is changing. Thirty years ago, 0% of the value of a car came from the software. As the cars got better, engine computers became more advanced, and the infotainment systems in cars became more prevalent, the value of software has increased, from 10% to 40% over the next 10 years as cars learn how to drive themselves, manage their internal components, and become more “smart” in general.

This puts companies like Apple and Google ahead of the game, with their fleets of software engineers and development know-how. Ford, GM, and everyone else has to play catch-up. Can they offer sufficient amounts of money and incentives to lure developers away from places like Apple and Google, where they could invent and develop things to change the world, to Ford, where they will make another difficult-to-use in-car infotainment system.

One interesting aspect would be Apple deciding to take advantage of Tesla’s offer to release all their patents. They can use the same skateboard battery module design and powertrain to underpin the car, with a new design and Apple flair to the rest of the car.

Actually Manufacturing the Car

Tesla’s most recent quarterly conference call brought out the bears – they’re burning cash like crazy on capital expenditures in order to ramp up for an annual run rate of 2,000 cars a week (100,000 per year) as well as building the Gigafactory that could make cells for 500,000 cars a year in 2020, plus batteries for renewable energy storage.

However, all this spending – $5 billion on a battery factory and $2B or so more on its factories in California, is just petty cash for Apple. Apple currently has a $177B cash pile, of which $150B is net of debt. Apple could easily invest $5B in the facilities to build the batteries and the cars – its not a matter of whether they have the cash, its if its the right way to spend that money.

More Importantly, Supporting the Car

The genius bar is usually pretty good about customer service (I haven’t been in a while, knock on wood), even if the lines are horribly long. But how does that translate to getting your Apple EV fixed? Most Apple Stores are in malls, not a place you can drive your car into to get fixed. So what does Apple do? If they go with automotive franchises, they lose their exacting control over the process. Beyond that, they run into the same problem as Tesla with franchises – it’ll be multiple brands under one roof since they will be a small-time player to begin with, and its always more profitable for the dealer to sell a higher maintenance gasoline car compared to a low-maintenance Apple EV because dealers make their money on service, not on new car sales.

It would make a lot of sense for Apple to partner with Tesla on the supercharger network, and infuse a boatload of cash to expand it to support the number of Apple EVs made. Here there are a lot of brand synergies between Apple and Tesla.

But What’s the Sustainable Competitive Advantage?

Apple would only be thinking about becoming a car manufacturer (because eventually it will be more than one car – it’ll be a line of cars) unless it thought it could bring something to the table that all the other companies out there (Ford, GM, Toyota) can’t, and that it would have a long term sustainable advantage. They aren’t trying to be like Elon Musk, who just wants to advance EVs and save the planet from carbon poisoning.

Design? Apple has impeccable design under Jony Ive. The Model S has great design, but lacks luxury in many ways that show its newness to the car industry (the seats, the small visor), and those are being fixed, but it will take a while. Apple will likely have some of these issues out of the gate too, but they would likely be fixed within the first few iterations.

Batteries? Could Apple be working on engineering and developing its own batteries? Not likely. As I illustrated above, Apple ships a tremendous amount of batteries every year. Is it enough to rely on the battery industry at large to continue to innovate in the battery space? Maybe not, but battery research is remarkably difficult – the annual improvement rate is only 7-8% and big breakthroughs are very rare, even if the scientific papers stack up to the ceiling. If Apple has something up it sleve to differentiate itself like working, mass-producible solid-state batteries that offer 700Wh/kg and 1300Wh/l, it would be a coup in the portable consumer electronics and EV worlds – phones as thin as 15 playing cards, cars that can go 400 miles without recharging. But this is very unlikely (I really hope I’m wrong but I doubt it).

Integration? This is always where Apple shines. Apple isn’t generally the first to move (they weren’t first with contactless payments) but they are usually the first to get it right from top to bottom, in a way that the user can understand. The difficulty here is that cars are a mature industry, very mature. Its easy to say that just about every company could do in-car computers better, even Tesla. Apple will show everyone how its done. But after that, and people understand the new paradigms for how people interact with cars, then what? This knowledge and innovation diffuses throughout the industry and becomes general knowledge in the same way physical keyboards went away and capacitive touch screens became the norm.

Self Driving? The individual automakers aren’t doing all the heavy lifting individually, automotive suppliers like Bosch and startups like Mobile Eye are the ones coming up with the hardware and software to solve pieces of the autonomous driving puzzle. Apple could either redo that work or simply integrate parts from suppliers into a self driving system like Tesla is. It’s nothing terribly novel or unique.

Verdict

The problem to be solved with Electric Vehicles is batteries – weight, volume, range, cycle life and safety. All five dimensions need to be improved, plus the cost will need to come down dramatically before the general public adopts EVs over gasoline cars (especially in the current gas price climate).

What isn’t a problem is design or features. Sure, design can be improved and refined, but a better designed car won’t bring out customers in droves. An electric car fits very nicely with Apple’s sustainability goals – working to have a cleaner environment, but there won’t be that much of a market given the current limitations on batteries. This is the problem Fisker had – brilliant design but they didn’t solve the battery problem in a new or novel way – and now they’re out of business.

Its difficult from the outside at this early stage to determine why Apple would want to develop a car, along with the immense investment that would need to accompany development and production if it had honest aspirations of being a worldwide automotive manufacturer. For Apple to enter the market, there needs to be some long-term competitive advantage here. I just don’t see it right now – just designing a better looking or more user friendly EV doesn’t solve the major pain points consumers have right now.

The problems with EVs are battery range, recharging time, and battery weight and volume. And Apple isn’t more or less likely to be the company with a group of electrochemists that discover a breakthrough than any other company, large or small, doing battery research today. It is for primarily that reason that I think Apple would be a fool to enter the automotive space, specifically EVs, in the short term. As cars transform from machery we operate to automated consumer electronics on wheels, there is a space for Apple and others who want to move in that line of products, but that transition is 10-15 years away.

Broadband & Title II

The core problem at the center of today’s broadband debate: laying down fiber, or even hybrid fiber/coax or 75Mbps DSL, to everyone’s house is extremely capital intensive. It leads to mono/duopoly conditions because the more competitors in the market equals more ways you split revenue pie equals marginal investment is less attractive.

So what do we do? We can heavily regulate these monopolies/duopoly (Title II) but that doesn’t fix the lack of competition. Prices will still be high because you only have one or two companies providing “Broadband” (25/3) in a given geographical area. There is no incentive to price compete when there will never be new entrants & no substitute products (wireless broadband wont cut it). So we’ll be stuck with high priced broadband that doesn’t block Netflix, that’s OK for now, but doesn’t address long term competitive issues.

We could let local PUC/Corporation Commissions regulate price for broadband, same way they do investor-owned utilities. But lets step back and look at this from a least-regulation position. Mono/duopolies shouldn’t be allowed to do whatever they want. So lets try and get rid of the fact they’re monopolies in the first place.

How do we increase competition? Government can’t force laborers to work cheaper to install the fiber, nor can they make the materials cheaper, so capital costs remain high. If we force companies like Comcast or Verizon (I-ISPs) to open up their lines to competitors (C-ISPs), it will never be an even field. Comcast or Verizon will always slant things to benefit them, in pricing or response time to fix issues, and run C-ISPs out of business. You think Comcast treats their own customers bad now? Imagine being a customer of a C-ISP using Comcast’s pipes.

We need a company to lay fiber that will resell transport but not compete with its customers (the C-ISPs). A municipal agency (govt) that owns the fiber and maintains it would be a good option. Better than your city/county maintaining roads because its a dedicated agency and the money coming in from the C-ISPs stays in the agency for upgrades and improvements (the digital highway trust fund cannot be raided to pay for other things). Limited scope by govt charter, regulated by the state to prevent scope creep. One mission, one goal of building 21st century roads. The agency has a fee structure for (flat + per Mbit + per Mbit/sec) companies who want to sell access. Companies are free to add value (alarm systems, television, phone, etc.). The net neutrality issues go away because of the high degree of competition – if company A slows down Netflix, switch to B, C, D or E.

If we put this plan in motion, existing ISPs try to run other companies out of business. We need regulatory help to prevent that. The optics get difficult, “XXXX is responsible for your higher bills!” they’ll say, but ultimately its to prevent anti-competitive behavior by the large incumbents. Without it, incumbents will wage a price war longer than the government and the competitive ISPs can sustain, which would spell doom for the entire program.