Apple car!?

5 Mar

What about making a phone battery first that lasts more than half a day?

Apple’s plans to have its own car have been making rounds in the media in the last couple of weeks. Apple has been hiring engineers from car manufacturers; some already suggest Apple could start producing cars as early as 2020.

apple_carCan I borrow your charger? – Photo:Index.hu

Of course there are no firm details yet, but the fact that many got excited by the news is no surprise. The sectors Apple entered so far have seen pretty big changes as a result. If they could replicate this in the auto industry, that would be a major hit, considering that an average US consumer spends way more on cars than on mobile gadgets.

That is, IF they can do it. To come back to the question in the lead: what about a lasting battery first: that was not just a good sound bite. Because that’s basically what the electric car race is all about.

A breakthrough in electric cars depends first and foremost on when and who will come up with an AFFORDABLE car battery with a range of 4-500 kilometers (or somewhat less with superfast recharging). We have written about this before:

There are many problems with batteries at the moment (recharging times, safety, durability, recharging infrastructure, etc.) but the most important is cost. Batteries are hugely expensive at the moment, and that is why car makers usually build in only a small battery that is enough only for a limited range, resulting in an inferior product. The cost of batteries is something of an industry secret. However, we can make a pretty good guess from the high price of electric cars. Estimates regarding current battery costs range from USD 250-500/kWh. The higher numbers are actually more likely. […]

To give you a better handle, at USD 350/kWh battery prices, a 500 km range car would need a battery costing about USD 26,000, or EUR 19,000. That is more than the full cost of most cars. We think the price of this battery should be around USD 7-8,000 in order to become a killer application.

See full post: How will the “Age of Oil” end?

 

Battery costs of a Tesla car and an iPhone compared

To show how much the electric car business depends on battery costs, take a look at the chart below. This compares the shares of battery costs for a Tesla S car and an iPhone.

The price of a Tesla S (with the larger 85 kWh battery pack) is around USD 95-100 thousand, depending on extras. There are only estimates for its battery cost, as this is a business secret. The cost could be anywhere between USD 14-22 thousand (see some estimates here and here.)

The iPhone 6 price range starts at USD 650 (contract-free), while the batteries cost a mere 3-5 dollars. The iPhone does not have a single part, which would represent such a large chunk of the costs (see the iPhone 6 cost breakdown here).

Step-by-step change or revolution?

The Tesla battery cost per kWh is by the way already well below that of other industry participants, and also below the costs we mentioned in our previous post. With the above figures, Tesla’s cost may be somewhere between USD 160-260/kWh.

tesla_vs_iphoneSource: own calculations, Tesla Motors Club forum, Tesla.com, techinsights.com, apple.com   

Tesla reached this by not building its own specialized car battery, but by building together cheap commodity cells widely available on the market, similar to those used in laptops.

Elon Musk, Tesla’s founder, has ambitious plans to build a battery giga-factory, where the battery costs would be below USD 100/kWh. This could make Tesla available for a wider market, not just the uber-luxury range.

And this is also the level that Apple may aim for if they want to make electric cars more widely available. It is no coincidence that Apple has also tried to hunt down some big-wig battery engineers recently. If we actually get down to these levels around 2020, this could already provide meaningful competition to gasoline and diesel cars by that time (also assuming that the chicken-and-egg problem of charging stations is resolved). That is actually much earlier than we predicted in our earlier post.

The big question, of course, is whether this cost level is attainable without a technological breakthrough, and if so, when. Elon Musk’s giga-factory is a bet that there will not be a breakthrough; just the current lithium-ion battery technology will keep getting cheaper. Apple did not start any of its prior revolutions by creating new hardware from scratch, but ‘just’ put together pieces of the puzzle in a consumer-friendly way and at the right time as they became available.

Who wins the electric race?

In a recent issue, the Economist argues that the large car manufacturers will be the winners of the electric car race. We would not be so sure that this will be the case. Tesla seems terribly sexy, and if they manage to reduce their costs, they may reach a breakthrough. And Apple’s financial strength and brand value can bypass much of its initial shortcomings, and they are also very good system integrators.

So far, the production model of the car was roughly that “brand companies” (such as a Volkswagen) were able to design a body and engine and integrate the other parts well into the system. The parts suppliers (such as Bosch) have already become stronger, but this has not reached a stage of the “Intel Inside” model, where the average car buyers pay particular attention to these parts providers.

The electrical (and probably also self-driving) cars that Apple and other new entrants try to manufacture would turn the current industry structure on its head. Manufacturing electric engines is a very simple and mature technology. Control of the battery and engine (and potentially the self-driving feature) are all software issues, in which fields the traditional car manufacturers do not have any advantage. A business model based solely on designing car bodies seems weak – probably that’s why some traditional manufacturers have been trying to develop fuel cell cars (which however currently looks pretty hopeless).

The role of system integration capabilities should not be underestimated: it took quite a while for the Koreans to master it, while the Chinese have not really succeeded yet. Thus it is not clear what the effect of the new entrants might be.

One thing seems certain: the electric car race will leave consumers better off.

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