Global information technology leader Apple is highly likely to break into the automobile sector. The US company is reportedly planning to create self-driving electric vehicles manufactured by an automaker under a tie-up agreement using a business model similar to its iPhone production.

A potential Apple Car, if realised, is thought certain to affect the competitive landscape of the auto industry.

Following year-end reports on Apple’s possible entry into the auto market by Reuters and Taiwanese news media, share prices of US and Chinese high-tech companies moved upwards.

In the US, companies such as Velodyne Lidar, a maker of light detection and ranging (lidar) sensors that act as the “eyes” of self-driving cars, have aroused strong investor attention. In China, investors flocked to Contemporary Amperex Technology, the world’s largest maker of batteries for electric vehicles, and other suppliers of EV-related components.

An Apple Car would be a “mass” of high technologies, said analysts at US and European auto market research firms, suggesting that suppliers of key automobile components may be changed.

The Apple EV project is expected to have a significant impact on the auto industry through the use of smartphone development and production knowhow to design cars and through the horizontal division of production. Apple is likely to focus entirely on designing cars while outsourcing production to companies such as Hon Hai Precision Industry, a top Taiwanese contract electronics manufacturer also known at Foxconn.

As in the case of iPhones, Apple is expected to devote itself to design work, including self-driving technology, while outsourcing production. The approach is likely to shake the auto industry’s existing business model of vertical integration, in which carmakers engage in the entire process from designing to manufacturing.

The horizontal division of labour is already advancing in China’s auto sector. Baidu, a top Chinese internet company leading the development of self-driving technology, announced this month that it would produce EVs with Zhejiang Geely Holding Group, an automaker in China, on an original-equipment-manufacturing basis.

In addition, Didi Chuxing Technology took the wraps off an EV developed for its service in November. China’s biggest ride-hailing platform, used by 550m people around the world, aims to put 1m units into use by 2025. BYD Auto, a Chinese EV maker proud of its brand, will manufacture the EV for Didi.

Magna International, a top Canadian auto parts supplier that has advanced into production of cars on behalf of automakers, is seen as a leading candidate to manufacture the Apple Car. Foxconn, which has teamed up with Apple in smartphone production, also reportedly wants to win the order.

The Apple project has drawn interest from automakers as well. Hyundai Motor of South Korea said this month that it was in early talks with Apple over a tie-up to develop an EV. A large order for production of the vehicle, if received, would probably enable Hyundai to raise its capacity utilisation rate and stabilise earnings.

But the project may upset the superiority of carmakers at the top of the industry. Automakers may “become Apple’s subcontractors and lose their originality”, warned an executive at a Japanese carmaker.

BYD decided to produce EVs on behalf of Didi because it can expect to profit through increasing output, an auto industry analyst said.

While Asian companies are starting to move in a bid to capitalise on the Apple Car project, a question is whether Japanese groups are prepared for it. There remains concern that Japanese companies will lose the initiative to Chinese and South Korean rivals, as in the case of smartphones and consumer electronics.

A version of this article was first published by Nikkei Asia on January 12 2021. ©2021 Nikkei Inc. All rights reserved