Apple (AAPL) is still stubbornly quiet about its electric car effort, but the “Apple Car” project appears to be making rapid progress behind the scene. After rumored manufacturing deals with Hyundai and Kia fell through, The Korea Times reported this week that the iPhone maker has found a new target, LG (yes, the Korean electronics giant), to make its first EV model as early as 2024.
Apple is near signing a contract with a joint venture of LG and Magna, a Canadian auto supplier, sources told the Korean newspaper. Initial production volume will be small, a source said, as Apple is mostly using early prototypes to evaluate the market.
The joint venture, known as e-Powertrain, is valued at $1 billion. LG will own 51 percent of the new company and Magna the rest.
It was previously rumored that Apple had held talks with Hyundai and Kia to manufacture the first Apple Car. (Hyundai owns a stake in Kia and Kia owns several Hyundai subsidiaries.) The iPhone maker had also approached Nissan. Those discussions all fell through reportedly because established automakers feared ending up as “the Foxconn of the auto industry.”
A car partnership with LG may seem unexpected, but it could actually be beneficial to both sides. LG is already a major partner with Apple’s existing businesses. Several LG Group affiliates, including LG Display, LG Chem, LG Energy Solution and LG Innotek, are longtime Apple suppliers.
Meanwhile, the Korean conglomerate is on its way out of the cell phone business and is deepening its ties in the automobile industry. LG has supplied motors, battery packs and components for General Motors’ EV department as well as Tesla.
“As the LG brand is not that strong in the global EV industry, it needs a pretty competitive reference to show off its transformation efforts. From that standpoint, LG’s bet on the Apple EV is not that bad, and vice versa for Apple,” said one of The Korean Times‘ sources.
In a detailed report about Apple Car in January, Morgan Stanley estimated that Apple only needs to capture 2 percent of the auto market to achieve the revenue level of iPhone. (Apple raked in $26 billion from iPhones in the last quarter of 2020.)
“Smartphones are a $500 billion annual [addressable market.] Apple has about one-third of this market. The mobility market is $10 trillion. So Apple would only need a 2 percent share of this market to be the size of their iPhone business,” the investment bank’s report said.
Morgan Stanley analyst Katy Huberty highlighted Apple’s $20 billion in R&D budget, writing, “A noticeable percentage of Apple revenue in any given year comes from products and services that didn’t exist 3 to 5 years ago. An important point when you start thinking about Car and Health and AR.”
In the long term, she also thinks Apple is more likely to vertically integrate its auto effort instead of relying on outside partners, a legitimate worry of automakers who declined to work with Apple.