Toyota VS Apple: The Age of EV Battles Unlatches the Door to Smart Cars

The electric vehicle (EV) market appears to have entered an era of car wars, with U.S. veteran automakers like General Motors (GM) and Ford officially positioning themselves on the main battlefield of EV development. In addition, big name IT companies such as Apple (U.S.) and Baidu (China’s major Internet search engine) have entered the fray.

Amid numerous companies turning to EV investment in the global trend toward decarbonization, will the world’s leading automaker in sales, Toyota Motor Corporation, be able to defend its stronghold? The point of competition will also dramatically shift with challenges taken on by IT tech giants from the U.S. and China.

Apple Cars?

In the wake of a Reuters report that Toyota will begin production of EVs in 2024, Apple’s movements have suddenly been in the spotlight. Although Apple has not made any official announcement, what will happen if Toyota comes face to face with an “Apple Car”?

First, look at the background of Apple’s entry into the EV market. It is a well known fact that from around 2014, the company began working on “Project Titan”, a development plan for self-driving technology. Apple’s aim is the mastery of artificial intelligence (AI) that maneuvers cars.

Apple chose automobiles, essential tools of our daily lives, as a platform to apply AI, which is an extension of the intelligence of computers and smartphones (the operating system or OS), Apple’s core business. As automobile electrification accelerates due to a growing affinity with software technologies, such as those used in drive motors, the time is ripe to enter the market.

Having already launched its “Apollo project” for the development of autonomous driving software, China’s giant Baidu also aims to take the lead in AI. In both cases, the two companies strive for something different from conventional automobile manufacturing, which competes based on hardware performance.

Toyota’s ‘E-Palette’ Smart Car

As for Toyota, its showdown with Apple centers around its capacity for innovative car making based on AI software. In fact, preparations for it are steadily underway.

A self-driving EV, the “e-Palette”, which will be used as a means of transportation within the Tokyo Olympic and Paralympic Village sites this summer, as well as inside the prototype city for advanced technology, the “Woven City”, constructed by Toyota and launched on February 23 at the base of Mt.Fuji (Susono City, Shizuoka Prefecture), is the embodiment of car manufacturing based on software technology in the age of AI. Practical use is already in sight for the vehicle.

Last November, in response to the spread of COVID-19, Toyota’s major event, “Toyota World Convention”, which is held once every four years and brings together sales professionals from all over the world, was conducted online. During the event, President Akio Toyoda is said to have declared that the company will put the same amount of effort into software development as they do in automobile manufacturing.

Keeping his word, when the company was revamped this past January, President Toyoda invested his personal funds in a software development Toyota subsidiary that supports e-Palette and Woven City. Emphasizing its priority, Mr. Toyoda’s son Daisuke was appointed as a member of the company’s managing team. Largely responsible for the management of The Toyota Motor Corporation, the founder has his sights set on the battle of AI software.

Collaboration Key in Toyota’s Calculated Challenge

Needless to say, there is no guarantee that Toyota will be able to gain a lead in software technology over tech giant Apple.

Apple’s net income was $57.4 billion USD in the fiscal year ending in September 2020 (approximately ￥6 trillion JPY), which was around three times as much as Toyota’s in the comparable fiscal year ending in March 2020 (about 2 .76 trillion JPY). Apple also retains the number one spot in the world’s most valuable brand ranking, a status it has held for eight consecutive years through 2020 (calculated based on data from U.S. company, Interbrand).

Apple is valued at almost $323 billion USD, which is 6.2 times higher than Toyota, which ranks seventh with a corporate value of around $51.5 billion USD. The reliance on its technology, which comes from Apple’s astounding brand power and financial strength, leads to big expectations for the Apple Car and will most likely attract a vast number of customers once it goes on sale.

However, Toyota still has a chance for victory.

For example, consider smartphones, which were first introduced to the world by Apple founder Steve Jobs. Its brain, the Apple iOS, does not have the leading global market share.

According to a market share estimate by U.S. research firm IDC, U.S. company Google’s Android came out on top with an 84.8% market share, compared to Apple at 15.2%. While Apple maintains its brand value by keeping its operating system exclusively for its own products, Google expanded its market share by opening up its technology for many other companies to utilize.

Since last year, Toyota president Akio Toyoda has repeatedly stated that the key point in its management approach is “making friends”, a concept that is in line with Google’s Android strategy.

In recent years, Toyota has been expanding its framework for complementary and collaborative technology development for autonomous driving by pursuing aggressive partnership strategies with companies such as NTT, Softbank Group, and newly-emerging U.S. enterprise Aurora Innovation.With competitive giants such as Amazon and Microsoft, this diversity of partnerships is a major weapon, as well as a point of segregation in the competition with Apple and its corresponding Chinese giant, BYD Co Ltd..

On the other hand, for Apple, the presence of partners seems to be a cause for great concern. The IT giant, however, will purchase high-quality batteries and motors, and will outsource the manufacturing of car bodies.

Although for an IT company like Apple, a horizontal division of labor, based on assigning each task to an expert, is the logical business model, the responsibility for people’s lives that comes with manufacturing automobiles is a far heavier burden. The obligations for quality control, investigating the cause of defects, dealing with recalls (recovery and free repair services), and compensation for accidents are far greater than for smartphones.

A collaborative partnership that can share sufficient technical information along with these responsibilities will not form overnight. A niche strategy with a limited number of cars may not be so bad, but Apple will also have high walls to overcome if they wish to close in on Toyota’s stronghold.

Tokyo Motor Show 2019 Gives A Glimpse of What Cars Will Look Like in the Future

(Find access to the Sankei report in Japanese at this link.)

Author: Noboru Ikeda, Economic News Department, The Sankei Shimbun