New iPhone Upgrade Program May Point to the Apple Car

silvercar+appleWhen I first started speculating on the idea of an Apple car last February as rumors about Project Titan emerged, I was enormously skeptical that it would ultimately happen. However in the days since Apple’s most recent media event where they announced the iPhone 6s, I’ve begun to rethink my assessment. I now see a way that might lead to Apple’s entry into the car business based on their latest approach to selling smartphones.

My earlier skepticism was based largely on two approaches to the problem of building and selling cars. Compared to Apple’s existing businesses, the auto industry has notoriously poor margins. Longer term, if personal car ownership is supplanted by shared autonomous vehicles, the vehicles themselves become commodities with little room for Apple’s unique user experience.

Subscribing to a new phone

During the September 9, 2015 media event, Apple announced a new plan that could keep customers paying for new iPhones in perpetuity. For a monthly fee that ranges from $32.41 to $44.91, customers can now get a trade in their phone every 12 months in exchange for the latest and greatest edition. Apple then takes the older phones, refurbishes them and sells them to someone else. This continuing and more importantly predictable revenue stream is what every business dreams of. The monthly payments are based on buying the phone outright over 24 months. However, if customers upgrade every 12 months, they are effectively leasing their up-to-date phone forever.

Imagine doing the same thing with cars. In essence this is what a lot of the more profitable premium automotive brands do already. Brands like BMW, Mercedes-Benz and Audi actually lease the majority of the new cars that they “sell.” After the two to three year leases are up, customers turn in the car, lease another and the old cars go to a factory refurbishment facility. After a thorough makeover, the off-lease cars go into the certified pre-owned (CPO) program. Dealers love CPO cars because they come with a warranty and they sell for a substantial premium over conventional used models and customers love them because they can buy what is in many respects a like-new used model at a substantial discount.

Silver, white, space grey and rose gold

However, I expect Apple to take this a step further. Instead of a traditional leasing program where they actually sell the cars to the finance company that underwrites the lease, I think Apple would transfer the cars to another division that runs its own service that is a mix of ZipCar and Silvercar.

For those not familiar with Silvercar, it is a relatively new car rental company that provides hassle-free rentals. Silvercar’s entire fleet consists of identical silver Audi A4 sedans. Everything is included for one flat daily fee. You simply reserve a car through a smartphone app or the website and then unlock the car with your phone when you pick it up. Everything is paid for online.

While Silvercar is targeted at daily rental users, I can see Apple taking a Netflix-style monthly rate, all-you-can eat/drive approach to its service. Like Silvercar, it would have a fleet consisting of one vehicle type, the Apple car although it may be offered in space grey, white, gold and rose gold. When you need a car, you launch the app on your perpetually leased iPhone, reserve it and pick it up from the nearest charging station. It would not be a surprise to see Apple either license the Superchargers from Tesla or create their own equivalent with yet another proprietary charge connector.

Apple could even take advantage of the Continuity system that was added in iOS 8 to preserve a driver’s favorite vehicle settings through iCloud. When you get into the car you’ve reserved, your saved CarPlay layout would magically appear on the screen, the seats and mirrors would move to your preferred positions and whatever you were listening to would start playing on the audio system. This way no matter which car you get, it will be preset with your preferences including your saved navigation destinations. In many respects it would be just like logging into a new Chromebook.

While some optimists believe that fleets of shared autonomous cars will replace personal vehicle ownership, that is unlikely to happen anytime soon. Fully autonomous general purpose vehicles are probably much farther out than the optimists would like you to believe. However, partially automated, shared, electric vehicles with a fruit logo that you simply subscribe to could become a reality. By sharing the fleet and increasing the utilization rate of vehicles, Apple could potentially realize significantly more revenue per vehicle than they ever could through individual sales.

No dealers to contend with

For Apple, there is also another huge upside to this approach, no franchised dealer network to contend with. I had previously postulated that with its huge cash reserves, Apple might have far more success swaying state legislatures to allow direct factory sales than Tesla has had. However, if Apple were to “sell” new cars only to its in-house subscription division, it might be able to completely circumvent the existing franchise system. When older vehicles are taken out of the subscription fleet and refurbished, these used CPO vehicles could be re-sold to anyone.

This all remains highly speculative, but it wouldn’t surprise me to see Apple try something so different.

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