Apple and Hyundai-Kia pushing in direction of deal on Apple Automotive

After years of speculation that Apple will eventually get into the auto business with its own vehicle, Apple is on the verge of signing a deal with Hyundai-Kia to manufacture an Apple-branded autonomous electric vehicle at the Kia assembly plant in West Point, Georgia, multiple sources, informed the CNBC of the plan.

The so-called “Apple Car”, which is being developed by a team at Apple, is expected to go into production in 2024, although people familiar with the talks between Apple and Hyundai-Kia say that the eventual rollout could be pushed back.

Sources tell CNBC that an agreement has not yet been reached between the two companies. In addition, they stress that Apple could ultimately choose to work with another automaker separately or in addition to working with Hyundai.

A source familiar with Apple’s strategy for developing a car told CNBC, “I doubt Hyundai is the only automaker they could get a deal with, someone else.”

Apple shares rose more than 2% after hours on the news.

Apple and Hyundai-Kia spokespersons declined to comment when reached out by CNBC.

Why should Apple choose Hyundai-Kia when an agreement is in place? Equally important, why would the Korean automaker close a deal with Apple?

Those familiar with the discussions say that each company sees a unique benefit in developing an Apple car together with the other.

For Apple, the decision to build a car opens up the potential to open up a global auto and mobility market valued at $ 10 trillion. Morgan Stanley analyst Katie Huberty outlined the earnings potential for Apple in a research report she released in January.

“Smartphones have an annual TAM of $ 500 billion. Apple has about a third of that market. The mobility market is $ 10 trillion. Apple would only need 2% of that market to grow the size of its iPhone business to achieve, “wrote Huberty.

Sources familiar with Apple’s interest in working with Hyundai say the tech giant wants to build the “Apple Car” in North America with an established automaker willing to give Apple control over the software and hardware that is in be installed in the vehicle.

In other words, this will be an “Apple Car”, not a Kia model with Apple software.

For Hyundai-Kia, the collaboration with Apple is driven by the company’s new chairman, Euisun Chung, who took control of the Korean automaker last October. According to a source familiar with the Hyundai-Kia strategy, “Chung has made it clear that mobility is the company’s future.” This is important because the Apple Car will be completely autonomous.

By partnering with Apple, Hyundai-Kia officials believe they will accelerate the development of their own autonomous plans, as well as their plans for electricity and vehicles. Hyundai is currently partnering with Aptiv in a joint venture developing autonomous vehicle technologies including robotic taxis.

There is no indication that the joint venture would change if Hyundai reached an agreement with Apple. Additionally, the Kia facility has available capacity about 90 minutes southwest of Atlanta, Georgia, so production can be scaled up and the Hyundai-Kia supply chain developed relatively quickly.

Vehicles stand in front of the first U.S. Kia automobile plant during the grand opening in West Point, Georgia, the United States, on Friday, February 26, 2010.

Dave Martin | Bloomberg | Getty Images

While it is still unclear exactly what the first Apple Car will look like, those familiar with the plans say there are some notable features.

“The first Apple Cars will not be designed for a driver,” said a source with knowledge of the current plan. “These will be autonomous electric vehicles that are designed to run without a driver and focus on the last mile.” This could mean that Apple cars could, at least initially, focus on delivering packaged food and on companies that are installing robotaxis.

The move could put the tech giant in direct competition with Tesla, which is introducing self-driving features for its vehicles. Elon Musk, Tesla CEO, recently told investors that converting Tesla’s into a self-driving robotic axis could justify the company’s valuation, given that the cars would be in use for more hours a day and Tesla could generate higher per-car revenue. In 2018, Apple lured Doug Field, then Tesla’s senior vice president of engineering, back to Apple, where he had previously worked, presumably to work on self-driving cars. Apple has also hired countless other former Tesla employees, including Michael Schwekutsch, now Senior Director of Engineering for Apple’s Special Projects Group and formerly Tesla Vice President of Engineering.

Musk said he once tried to initiate talks with Apple to acquire its electric car company, but Apple CEO Tim Cook declined his invitation to meet.

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