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Apple Couldn’t Build The Car Of The Future. But China’s Tech Giants Already Have

For some Apple fans, a car seemed inevitable. Tesla had proven the legacy automakers wrong. Its success told everyone that Silicon Valley could outwit Detroit and the rest to make a hot product, even without longstanding expertise in carmaking. If a relatively young upstart like Tesla could do it, surely a tech goliath like Apple could take everyone to school.

Yet after a reported billion dollars spent per year, tons of poached automotive talent, multiple phases of unseen prototypes and a decade’s worth of endless speculation, Apple’s car project died unceremoniously in February.

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Why did Apple’s car project fail?

Despite Apple spending a rumored $1 billion per year on its EV project, nothing ever came of it. The company told the 2,000-odd employees tasked to the project earlier this year that it would discontinue development, with reports suggesting it couldn’t find an acceptable way to make a high-volume, high-margin product.

In the context of a reportedly more difficult EV market this year, Apple’s subsequent pivot to generative AI suggested that EVs were a waste of time for a tech company. Maybe Apple made the right decision in getting out. After all, with billions spent and nothing to show for it after a decade, it could be argued this was simply a financially responsible decision. 

Yet across the world in China, two of Apple’s direct rivals—smartphone giants Huawei and Xiaomi—have both succeeded in getting a vehicle on the road. Huawei’s Aito brand has rocketed to near the top of China’s sales charts with feature-packed, reasonably priced EV and PHEV crossovers.

The Xiaomi SU7 uses the same HyperOS as its Xiaomi-branded phones, creating a theoretically seamless connection between the home, car, and phone—something Western and other Asian automakers can only dream of today.

What do those two brands have that Apple didn’t? How did Huawei and Xiaomi succeed, when Apple failed? According to several experts, the answers are complicated.

An Apple Car Was Never Good For Apple

As the media and analysts perform a postmortem of Apple’s car program, one fact has become clear: Making cars is hard. So hard that the sheer act of building may have been the biggest impediment to Apple’s car plans.

Modern cars are made with the help of suppliers and third-party parts. Even Tesla, which leads the pack in its vertical integration, still uses some components from outside companies. It took Tesla more than a decade to get to its current level of vertical integration.

AI rendering of the Apple Car.

But Apple’s general product line is far more closed. The tech company is one of the most vertically integrated companies on the planet. To create a car in that mold quickly and profitably is a very, very tall ask. 

According to Sam Abuelsamid, the lead analyst for Guidehouse Insights’ mobility division, Apple’s dreams wouldn’t have been in line with what they could realistically expect to get from a vehicle.

“I think Apple probably said, you know, if all we do is just build a conventional car, we’re probably never going to be able to sell enough of those at higher margins,” Abuelsamid said. “You’ve got all the hassles of creating supply chains, manufacturing, retail, support, customer support and vehicle service.”

Abuelsamid added that the car industry is typically a fairly low-margin business, thanks to extreme overhead and labor costs, cyclical buying trends and intense competition. That last part is something Apple, which commands some 60% of the U.S. smartphone business, isn’t used to. 

“If you look at Apple as a business, everything they do is very high-margin products,” he said. “The profit margins on the hardware that they sell, are generally, somewhere in the neighborhood of 35 to 40%. Anything that’s low margin, they just don’t even bother with, because they’ve got enough customers and enough revenue from the high margin.”

Tesla, one of the best in the industry concerning profitability, has a gross profit margin of around 18% profit for its model line. Apple would either need to create a new business model or integrate revolutionary technology to beat those numbers.

That’s likely why Apple’s original “Project Titan” emphasized self-driving technology. Abuselamid says that autonomous driving would have allowed Apple to sell it more as a service than a product, creating the sort of recurring revenue streams that the tech giant loves. It doesn’t take a rocket scientist to see that Apple’s autonomous car program could have gone hand-in-hand with its 2016 $1 billion investment in Chinese ridesharing company, Didi. 

“My guess is what [Apple] had hoped to do would be to have an automated electric vehicle, then offer it on a subscription basis,” Abuelsamid said. “Because it will be automated, and for the foreseeable future, very likely, geo-fenced limited and where it could operate, [Apple] could offer it as a service in markets where they felt that there was enough of an affluent audience that would be willing to pay a premium for the mobility service.”

That’s not unlike the big promises Elon Musk has made regarding Tesla’s future. But similarly, autonomy didn’t ever pan out for Apple. Despite throwing billions at the problem, and poaching some of the best talent in the industry, it just never became a viable product, at least to Apple. 

Chinese car market Analyst Lei Xing seconded Abulsamid’s critique. “Any device that Apple launches, be it the iPhone, iPod, Vision Pro, iPad, the aim is to try to disrupt the incumbent products or business model currently on the market,” Xing said via e-mail.

Would Apple’s car disrupt anything? Would it have innovated in ways that legacy and startup EV manufacturers or autonomous driving companies had done before?

Probably not, was the consensus from Xing, and fellow analyst Tu Le of Sino Auto Insights.

“They were probably going to bring only some of the stuff that the Chinese EV companies are already doing in China,” Le said. Le alluded to how connected and semi-autonomous a lot of Chinese EVs are in China, and that Apple’s vehicles would have likely a comparatively short list of features.

“Tesla’s also feeling that pinch too,” he added. “Tesla is being out Tesla’d in China with NIO, XPeng, Li Auto, and Jiuye all rolling out their versions of full self-driving, while Tesla still only offers Autopilot.”

Le said that Chinese EV competitors have systems that are very much connected with the rest of the Chinese tech industry. These cars are integrated in ways that are more encompassing than the typical Apple CarPlay experience. For example, consumers can connect their equivalents of YouTube and Amazon often right from their car. Or, NIO’s Nomi: introduced in 2018, it is a charismatic virtual assistant that runs on AI. It’s not clear if Apple could have out-innovated the Chinese on this front. 

“From what I’ve been able to gather, no legacy automaker was particularly interested in working with Apple, because they did not want to enable a potentially much stronger competitor,” Abuelsamid said.

By comparison, Huawei’s success comes from its ability to synergize with actual established auto manufacturers. We’re seeing a version of this play out now on Sony’s Afeela joint venture with Honda. Similarly, Huawei acts as a deeply interested supplier, partnering with multiple Chinese brands. Arguably its most prolific partnership is with Seres (formerly SF Motors), the two together form the brand Aito.

Still, a partnership wouldn’t necessarily be the only method of creating an EV. Xiaomi opted to do most of the development on its new SU7 itself, although Beijing Automotive Group (BAIC) will assemble the vehicle. Specification-wise, it looks competitive, the self-developed motors look strong, and its cell-to-body technology and rear subframe “Hyper Die-Casting” seem to marry all the best ideas in car building right now. Yet, as a whole, the SU7’s specs or style aren’t the mind-blowing or otherworldly idea as the rumored fully autonomous Apple car.

But does it need to be? Xing doesn’t think so, because Xiaomi’s goals just are different from from Apple’s and always have been. “Xiaomi is trying to prove itself that it can build an EV and integrate it into its existing product ecosystem of human-plus-car-plus-home, where Apple is trying to develop a device to disrupt, so strategically it’s different,” Xing said.

Xiaomi, as well as Huawei, would likely sacrifice a bit of perfection in execution simply to get a product to market first. Add in a healthy dose of national pride amongst the Chinese for Huawei and Xiaomi, and a willingness for either brand to accept an inherently lower profit margin, and you can see how Xiaomi and Huawei’s car projects got off the ground when Apple’s did not.

Impressive as this may be, neither brand is out of the woods yet. Huawei’s Aito brand shows promise, sales have been fairly strong in recent months. However, it is more of a testbed for Huawei technologies like its HarmonyOS in-car operating system; the car itself is simply a reworked version of an older vehicle made by Dongfeng. Comparatively, Geely’s cooperation with tech company Baidu produced the Jiyue 01. Its full-width screen is impressive, but it has suffered from slow sales. 

Xiaomi’s car will be entering the midst of one of the fiercest EV price wars in China in recent memory. More established and arguably more innovative competitors are already feeling the heat and likely will not survive, we’ve already seen what’s happened to the very innovative Human Horizons. Still, Xiaomi got a car on the road; that’s way ahead of what Apple gave us.

The Xiaomi SU7 officially goes on sale on March 28. The Apple Car will not. 

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