Apples Smart Electric Car Business Strategies - Case Study Example

BUS3ENT Individual Business Plan Apple’s Smart Electric Car Name Class Unit Executive summary This business plan is based on development of Apple’s Smart Electric Car to compete in the global autonomous car segment. This is a new idea which has been driven by the advancing technology in the field of autonomous cars and the need to diversify the company income. The business plan will be executed with partnership with strategic partners who include McLaren and Lit Motors. The project is expected to start within the year and will depend on the organisation investment in Research and Development department. At the moment, the main competitors in the smart car market segment are BMW, Ford, Tesla, Daimler, GM and Toyota. Apple will integrate the car with its devices through use of iOS which gives it a unique feature. The business plan gives the market, technical, human and financial feasibility in details. Table of Contents Executive summary 2 Table of Contents 3 Introduction 4 Market Feasibility 4 Market size and growth rate 4 Current smart cars source 5 Customers’ location 6 Expected customers 6 External factors 6 Barriers to entry 7 Technical Feasibility 8 Options for developing the technology 8 Options for producing the product or service 8 Options for Sales and Distribution 8 Resources required for development 9 Laws and regulation relating to the business 9 Moral or ethical issues 10 Technological changes that may affect the business 10 Financial Feasibility 11 Projected Revenues from the sale of electric smart car 11 Financial dynamics and opportunities 11 Investment is required 11 Financial risks 12 Possible sources of financing 12 General Financial Numbers that indicate attractiveness of Venture 12 Human Resource Feasibility 13 Technical and management experience required 13 Ownership structure 13 Manpower requirements 13 Company’s growth strategy 14 References 14 Appendix 16 Introduction Motor vehicle clashes, pollution and associated costs are a major burden to the economy. Among these issues, driver’s errors are a major cause of the crashes. To reduce crashes, improve efficiency and reduce pollution, autonomous vehicles are a major invention (Marks, 2012). This is through use of new technologies which can include electric smart car. Apple smart electricity car is a product that apple wants to use in entering the car market. The company wants the car to be in the market by 2020 to compete with Tesla and G&M in this market segment. Apple smart electric car connects with Apps and can be summoned and instructed using the app. In addition, the car ensures that the customers are connected during the journey. The autonomous vehicle by Apple is aimed at giving the users convenience, safety, reduction in pollution and fuel savings. Moreover, the innovation is set to change the car industry radically. Apple electric smart car will be one of the most efficient cars with a better mileage and exhibits the most remarkable features. This is a car that saves energy and conserves the environment. Market Feasibility Market size and growth rate Statistics shows that the projected size of the autonomous car market by 2025 will be about 6 billion US dollars. At the moment, Apple has a global market share of 12.1 globally which points out to the users who can install the app for autonomous car. It is estimated that once the regulatory issues have been addressed, it is possible to have up to 15 % of cars driverless by 2030. The adoption of the electric smart car will become competitive and will vary based on the region. The use of autonomous technology which makes a car to become a platform where drivers can use their time for personal activities may speed up the adoption in the market (Marks, 2012). It is expected that the revenue from the automotive will grow and diversify due to the new services leading to a 1.5 Trillion USD by 2030. While the yearly growth rates for the global car market are expected to grow, the rate will drop gradually due to the rise of car sharing and e-hailing (Pettersson and Karlsson, 2015). According to a market research, smart cars are expected to produce a revenue of $600 million (£420m) by 2020. In fact, it shows that the smart cars are growing at a rate 10 times higher than the rest of the car market. This is a market expected to have a 45% annual growth in the coming five years. About 220 million smart cars are expected to be on road by 2020 with 88 million of them having connected services activated experience (Viereckl et al., 2015). Market conditions At the moment, automakers are entering the market due to rapid technological development. The leading companies in the smart car market are BMW, Daimler, GM, Toyota, Tesla and ford. The market is not yet to full capacity and has no clear winner. BMW has been leading in the smart car market while Tesla has gained a lot of popularity in the US market. At the moment, Microsoft, Pandora, Google, Sprint and other large firms are entering the market experience (Viereckl et al., 2015). Consumers’ interest in the smart cars has been growing with the rise of Internet of Things (IoT). Current smart cars source At the moment, customers can are buying the smart cars from companies such as Tesla, BMW, Ford and Toyota and Daimler. Despite this, Apple customers have not been able to have a car that integrates iOS with the autonomous vehicle technology. The current smart cars do not have the familiar iOS experience in their dashboard. This makes it hard for them to use their devices on other types of smart cars denying them the experience (Viereckl et al., 2015). Customers’ location Smart cars have a global customer base. The customers for the smart car are people who are interested in new designs, environmentalists and those dwelling in the cities. The smart car will also target the millennial since they are tech savvy and are interested in design. The target market for the car is the upper middle class and upper class that have high disposable income. This is due to the price tag which is high for the smart electric cars. The car is built for urban driving hence very appropriate for the city dwellers. Expected customers The number of the customers who may want to purchase Apple smart car is based on the current uptake of Apple products. The company have a robust market share for their high end smart phones. This is the same target market that is expected to make purchases for the smart cars (Apple Inc. 2017). Based on the market survey, it is expected that the smart cars will occupy 20% of the car markets by 2020. This is the market that Apple smart car is focusing on. External factors The development of smart cars raises issues on security and privacy. First, there are issues on security due to venerability to data breach. Apple smart car have to look into ways in which data breach can be avoided. The governments have been pushing and regulating the smart car development to ensure that sensitive data is handled appropriately. This includes ensuring that the data is encrypted and user data is not exposed. Apple expects to face government regulations as they develop the prototype. This is due to the government concerns on whether the industry can self-regulate appropriately. There are also fears of over regulation by the governments which can slow innovation. The smart car will also face industry dynamics which includes the rapid developing technology and accelerating innovation. There are already established premium brands such as Tesla and BMW who controls a large market share. The development will also be affected by the fact that most of the growth is from emerging markets with western markets flattening. With the traditional manufacturing losing market share, smart car has high opportunity for growth. The car is expected to face challenges due to high costs of manufacturing, rise of ride sharing which might reduce demand for personal cars and the rapid developing technology (Thrun, 2010). Barriers to entry First, the technology required for smart cars is highly expensive. This pushes the development costs high making it hard for a start up to enter into the industry. Apple smart car utilises iOS which is trademarked (Apple Inc. 2017). This makes it impossible for a new entrant to use the iOS in their products reducing the competitors in this niche. Entering the smart car industry requires a company with the capacity to understand and implement the technology. Other barriers to entry in the industry are high expenditures in research and development which are not recoverable (Thrun, 2010). These have made it hard for new entrants into the market. Technical Feasibility Options for developing the technology Apple will design the smart car with some help from British car market McLaren and Lit Motors. These two partners are supposed to help the firm gain needed knowledge to complete the project. This is also a partnership that will ensure that Apple smart car has the best specification compared to the competitors. McLaren designs high end cars which run on gas for the affluent customers. Lit Motors vehicle has been developing an electric vehicle which is designed as a hybrid between smart car and motorcycle. McLaren has aesthetic designs and will help Apple smart car together with their strong brand name. This is especially with the high end customers whom the company targets. This is an automotive company which has high experience with high end customers and hence will be very supportive to Apple. Lit Motors will help in manufacture of the electric parts of the smart car. Options for producing the product or service The smart car will be produced by Apple through in-house. After being developed through partnering with relevant firms such as McLaren, Apple will brand the car as their own product. The car will then be integrated with the company products and software. This includes Siri, Safari and an interactive dashboard branded by Apple Computers. Options for Sales and Distribution Apple will sell and distribute their products through their warehouses. This is in line with other products by the company. This will also give the company more control on their product. The company has already established a global distribution chain which will help them in sales and distribution. In addition, the firm have sales outlets which are well equipped. Through the years, Apple has been using their sales agents to sell their products successfully. Resources required for development Apple has all resources required for the development of a smart car. The firm have invested highly in R&D and have the required software skills. Apple creativity has earned them top position in the global innovation stage. The firm have one of the best computers technologies which will help a lot in the design of the smart car. This is due to fact that a smart car will require distributed supercomputers which are fed through the sensors and wheels which relies on predictive analytics (Thrun, 2010). Apple has adequate revenue for the development of project. This is due to fact that the equipment and facilities requires a lot of capital. Apple will also be required to pay the suppliers and other firms offering collaborative technology. This is all catered by the firm surplus revenue. Laws and regulation relating to the business There has been introduction of regulations aimed at the smart car industry. Most of the regulations are aimed at the users’ privacy and data protection (Thierer & Hagemann, 2014). Laws require that the smart cars should adhere to security standards to protect them from security breaches. Moreover, the laws require that smart cars should display security ratings based on the standards set (Litman, 2014). There has been rise on the importance of regulatory framework for security and privacy. In US, there have been calls to pass the Spy Car Act to ensure that smart cars are safe from cybercrime (Anderson et al., 2014). The industry has also been called to ensure they self-regulate (Richards and Stedmon, 2016). Moral or ethical issues In the development of smart car, privacy and data security issues have been a major ethical challenge. This is due to fact that customer sensitive data such as travel destination, area of resident and contact among other sensitive details are made venerable to cyber-attacks (Kelton, Fleischmann and Wallace, 2008). There have been fears that self-controlled cars can be remote controlled through unauthorised access. It is important to note that the smart car will have credit card data in their dashboard used for shopping. This exposes user financial data if not well protected and encrypted (Thierer & Hagemann, 2014). The development of driverless car has led to criticism on moral and ethics behind. The elimination of driver with technology has led to moral overtones (Viereckl et al., 2015). There are also criticisms on the smart car being a spy where the customers’ information is collected. When all controls are taken away from the driver, the responsibilities to accidents move away from the users. This leads to concerns on who will be taking the responsibilities for the accidents. The car also poses challenges to other road users who will be utilising same resources with the smart car. The smart car will be manufactured in accordance with the highest standards possible. This will ensure that it is safe from accidents and does not inconvenience other road users. The users will be assured that the information collected by the car will be safe and not given to third party based on the privacy guidelines (Kirkpatrick, 2015b). Technological changes that may affect the business There has been a lot of technological advancement in the Internet of Things. The changes in technology may impact the development of the electric smart car (Pettersson and Karlsson, 2015). Apple will have to stay updated on the technological changes that will affect the development of smart car. The electric smart car is utilising the best technology available in the electric and autonomous vehicle market. Financial Feasibility Projected Revenues from the sale of electric smart car Apple projects to have sales of $ 4 billion annually. This is based on the sales of each unit at a starting price of $22,275. The global autonomous vehicle market is expected to grow from $42 Billion to $ 77 billion. The firm expects to sell about 1000 units annually. By 2020, apple expects to have captured 16% of the market which is about $400 billion. Financial dynamics and opportunities Apple has adequate financial resources to help in development of the new electric smart car. Fixed costs-$900 billion Number of units’ produced-4000 Fixed costs per unit-$9,000 Variable costs per unit-$3,000 Gross Margin per unit-$10,000 Net Margin per unit-$8,000 Investment is required Apple has been investing a lot in research and development to come up with the electric smart car. Apple has already invested over $1 billion in equipment and technology. Apple will be required to incur costs in adding driverless technology. This will increase the costs of development with $70,000 to $100,000. The additional costs for the experts will add $3,000 to its total cost. The costs for one time technology such as LIDAR (like radar, but with lasers) will cost about $5,000 per vehicle (Shchetko, 2014). Financial risks The potential risk of developing an electric smart car is the market unpredictability which can lead to financial loss. At the moment, BMW, Tesla and Ford have already made big advances in the smart car industry. Being a new concept by Apple, the firm risks facing market rejection or the rapid changes in technology. The rapid changes in technology may lead to some of the technology being used by the new car obsolete. Possible sources of financing Apple has adequate revenue for the development of the electric smart car (over $3 billion). The company will depend on their savings and investment in R&D to develop the smart car. General Financial Numbers that indicate attractiveness of Venture Ratio Analysis Year 1 Year 2 Year 3 Year 4 Year 5 Percent of Sales Sales 100.00% 100.00% 100.00% 100.00% 100.00% Gross Margin 60.19% 60.70% 60.31% 60.41% 60.38% Selling, General & Administrative Expenses 108.77% 67.19% 51.30% 46.34% 37.63% Advertising Expenses 4.42% 3.50% 3.19% 2.31% 1.15% Profit Before Interest and Taxes -64.03% 3.56% 26.40% 30.11% 41.45% Net Profit Margin -40.04% 4.89% 15.27% 20.41% 33.89% Return on Equity -71.20% 12.97% 67.27% 50.44% 48.64% Sales/Net Worth 1.5 4.8 3.6 3.9 5.7 The payback time is expected to be 2 years based on the financial analysis. Within 2 years, the company will be making profit on the venture. The break-even is also expected to occur within the second year. Human Resource Feasibility Technical and management experience required Apple has all required experts in the development of electric smart car. The company have invested heavily in diversity which has ensured that there is creativity and innovation. The company have also ventured into strategic partnerships which ensure that they have the right technology. At the moment, the company have over 1,000 workers in the project and has plans to increase the number. The organisation has spent about $10 billion in research and development this year with an aim of catering for the electric car. Apple computers are the owners of the innovation which is headed by the manager in research and development, assistant managers and technology experts (Apple Inc. 2017). Ownership structure Apple fully owns the project despite help from other partners in the industry. The final product will be fully branded and sold by Apple computers in their outlets globally. Manpower requirements Apple will depend on the employees at R&D department. This includes the management staff, technology experts, software developers, engineers and technicians. The company also aims to have collaboration and consultations with the industry leaders such as McLaren. The employees will be compensated based on their knowledge and time spent in the project. The highest salary will be paid to the R&D engineer at a range of $108,054-$124,802. The base salary will be $108K to $125K. Employees’ motivation will be attained through bonuses and incentives. There will also be paid holidays and use of company cars. Company’s growth strategy To maintain quality, apple will utilise iOS technology to control the car. The software has already proofed to be safe and hence will enhance car security (Apple Inc. 2017). The firm aims to improve on the weakness of the competitors’ products to come up with a quality smart car. Being a new innovation by Apple, it is expected that the firm will open up a new division in the R&D department. This will lead to creation of a smart car department which will stand on its own. The employees will be promoted based on their expertise and success of the project. Promotions will be carried out every year based on performance evaluation. The employees will be given feedback based on their performance and also offered career advancement opportunities. There will be 10 levels in the engineering manager and senior software engineer. References Anderson, J. M., Nidhi, K., Stanley, K. D., Sorensen, P., Samaras, C., & Oluwatola, O. A. 2014, Autonomous vehicle technology: A guide for policymakers, Rand Corporation. Apple Inc. 2017, Apple. Available at: http://www.apple.com/ (Accessed: 18 January 2017). Kelton, K., Fleischmann, K.R. and Wallace, W.A 2008, ‘Trust in digital information’, Journal of the American Society for Information Science and Technology, 59(3), pp. 363–374. doi: 10.1002/asi.20722. Kirkpatrick, K 2015b, The moral challenges of Driverless cars, Available at: http://cacm.acm.org/magazines/2015/8/189836-the-moral-challenges-of-driverless- cars/abstract (Accessed: 18 January 2017). Litman, T 2014,Autonomous Vehicle Implementation Predictions. Victoria Transport Policy Institute, p.28. Marks, P 2012, ‘Autonomous cars ready to hit our roads’, New Scientist, 213(2858), pp. 19– 20. doi: 10.1016/s0262-4079(12)60813-6. Marks, P 2012, ‘Autonomous cars ready to hit our roads’, New Scientist, 213(2858), pp. 19– 20. doi: 10.1016/s0262-4079(12)60813-6. Pettersson, I. and Karlsson, I.C.M 2015, ‘Setting the stage for autonomous cars: A pilot study of future autonomous driving experiences’, IET Intelligent Transport Systems, 9(7), pp. 694–701. doi: 10.1049/iet-its.2014.0168. Richards, D and Stedmon, A 2016, ‘To delegate or not to delegate: A review of control frameworks for autonomous cars’, Applied Ergonomics, 53, pp. 383–388. doi: 10.1016/j.apergo.2015.10.011. Shchetko, N 2014, ‘Laser eyes pose price hurdle for driverless cars’ The Wall Street Journal, p.21. Thierer, A. D & Hagemann, R 2014, ‘Removing roadblocks to intelligent vehicles and driverless cars’, Wake Forest Journal of Law & Policy (2015), Forthcoming. Thrun, S 2010, ‘Toward robotic cars’, Communications of the ACM, 53(4), pp.99-106. Viereckl, R., Ahlemann, D., Koster, A. and Jursch, S 2015, ‘Racing ahead with autonomous cars and digital innovation’, Auto Tech Review, 4(12), pp. 18–23. doi: 10.1365/s40112-015-1049-8. Appendix Start-up Expenditures and Expenses Worksheet Item Total Cost Cash Required Land ____N/A Capital Equipment ______$ 1,000,000 Computer _____________$70,000 Beginning Inventory _____$50,000 Start up Supplies ________$500,000 Licenses and Permits ______$82,000 Leasehold Improvements ___$35,000 Utility hookups & Installation _$27,000 Advertising (Preopening) ____$23,000 Insurance _________________$12,000 Other _____________________$50,000 Total Estimated One-Time Cash Requirements ____$1,849,000 Start-up Operating Expenses Estimate No. of Months Total Cash Owners Salary ____N/A Employee’s salary, wages, benefits __$3billion Rent __$500,000 Promotion expenses _____$50,000 Supplies and postage _____$55,000 Vehicle Expenses _______$289,000 Telephone ______$10,000 Travel _________$15,000 Interest ________$67,000 Maintenance ____$45,000 Other _________$200,000 Total Cash Required to Cover Operating Expenses ____$3,001,231,000 Plus: Total One-Time Cash Requirements (Previous Table) ____$3,003,080,000 Add 10% Safety Factor ___$3,503,388,000 Total Cash Required for Start-up ____$3,503,388,000 Read More