THE BABSON COLLECTION

BAB741
JUNE 2023

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APPLE’S ELECTRIC VEHICLE

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It was a cool February 2023 morning in Cupertino, California. Apple CEO Tim Cook was standing
in his office in the company’s spaceship-shaped headquarters building staring west towards the
mountains. As he contemplated Apple’s most recent growth struggles – evidenced by a 5.5% drop
in total revenue and an 8.2% decline in iPhone sales for the December 2022-ending quarter1, Cook
wondered – after dabbling for over a decade -- whether it was time for Apple to push more
aggressively to launch an electric vehicle (EV).

Cook asked himself four questions:

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 Was the EV industry attractive?
 What must a new entrant do to win in the EV industry?
 Did Apple have the capabilities needed to win in this industry?
 If so, how should Apple enter the industry and position itself to gain market share?

EV Industry Background
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The Hybrid and EV industry was large and expected to continue growing at double-digit rates –
with considerable variations in growth depending on the region – due to government incentives,
rising oil prices, and other factors. Competitors – including gasoline powered vehicle (GPV)
manufacturers, pure-play EV companies such as Tesla, and manufacturers of hybrid vehicles –
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vied for a larger share of this growing market.2

Industry Value Network

The Hybrid and EV industry’s value network, the chain of industries between raw materials
suppliers and the consumer, was complex. As depicted in Table 1, first and second tier suppliers
shipped inputs to manufacturers, which distributed the vehicles they produced to first and second
No

tier buyers.3

1 Peter Cohan, "With Revenue Down 5.5%, Tim Cook Presides Over Shrinking Apple,” Forbes, February 3, 2023,
https://www.forbes.com/sites/petercohan/2023/02/03/with-revenue-down-55-tim-cook-presides-over-shrinking-
apple/, accessed May 26, 2022.
2 Shahool Al Bari, "Hybrid & Electric Vehicle Manufacturing," IBISWorld, January 2023, https://my-ibisworld-

com.ezproxy.babson.edu/us/en/industry-specialized/od4516/industry-at-a-glance, accessed April 5, 2023.

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3 3 Ibid.

This case was prepared by Peter Cohan, Associate Professor of Management Practice, and Sam Hariharan, Associate
Professor of Practice, Babson College, 2023. The case was drawn from published sources and developed solely as a
basis for class discussion. It is not intended to serve as an endorsement, source of primary data, or an illustration of
effective or ineffective management.

Copyright © 2023 Babson College and licensed for publication to Harvard Business Publishing. All rights reserved.
No part of this publication may be reproduced, stored, or transmitted in any form or by any means without prior
written permission of Babson College.

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Table 1. Hybrid and EV Industry Value Network

Second Tier First Tier Hybrid and EV First Tier Second Tier
Suppliers Suppliers Manufacturers Buyers Buyers
Paint Automobile New Car Dealers Car Rentals

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Manufacturing Engine & Parts
Manufacturing
Iron and Steel Battery Automobile
and Manufacturing Wholesalers
Manufacturing
Automobile Automobile
Interior Steering and

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Manufacturing Suspension
Manufacturing
Automobile
Brakes
Manufacturing
Automobile
Transmission
Manufacturing
op
Source: Created by case writers based on data from Shahool Al Bari, "Hybrid & Electric Vehicle Manufacturing,"
IBISWorld, January 2023, https://my-ibisworld-com.ezproxy.babson.edu/us/en/industry-
specialized/od4516/industry-at-a-glance, accessed April 5, 2023.

As described below, the drivers of operating profit margins varied for key industry participants as
follows:
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 Battery manufacturing. Driven by demand for EVs, IBISWorld estimated that industry
profit, measured as earnings before interest and taxes, would reach 4.9% of industry
revenue in 2022. As battery volume increased, analysts expected unit costs to decline and
hybrid and EV makers to pass those lower costs on to consumers in the form of lower
prices.4
 Hybrid and EV manufacturers. Hybrid and EV manufacturers were the hub of this
ecosystem and demand for their products’ revenue grew at a 19.1% average annual rate to
No

$26.3 billion in 2022. Between 2022 and 2027, analysts expected growth to slow slightly
to 17%. Two demand drivers were a 10.1% average increase in the price of crude oil and a
2.7% growth in a new car dealer demand during the five years ending 2022. The industry’s
profitability was slim with EBIT as a percent of revenue declining by 1.2 percentage points
to 2.4% between 2017 and 2022.
 New car dealers. From 2021 to 2026, IBISWorld expected industry revenue to continue
increasing at an annualized rate of 1.0% to $1.1 trillion. Industry growth would result from
gains in disposable income, an aging vehicle fleet, increased consumer confidence, and
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low interest rates. Analysts expected industry EBIT to remain steady, accounting for 0.7%

4Arielle Rose, "Battery Manufacturing in the US," IBISWorld, September 2022, https://my-ibisworld-
com.ezproxy.babson.edu/us/en/industry/33591/industry-performance, accessed April 5, 2023.
2

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of revenue in 2026.5 In 2022, however, inflation was sapping disposable income and

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consumer confidence. Rising interest rates boosted vehicle ownership costs for consumers
who financed their purchases while raising new car dealer financing costs.

Industry Growth

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Between 2018 and 2023, IBIS World expected the Global Hybrid and EV industry to grow at a
24% annual rate to $48.1 billion. During the period, the global car and automobile industry
declined at a 0.6% annual rate to $2.9 trillion.6 The Hybrid and EV industries were a rapidly
growing segment of the total auto industry in which incumbents such as Toyota and GM usually
distributed vehicles to consumer through the same dealers.

Factors driving EV industry growth included:

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 Continued tax incentives
 Rising fuel costs
 Technology advancements
 Declining battery prices
 Increased rivalry results in lower prices which increased consumer demand
 A desire to lower their carbon footprint
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Factors impeding current growth rates included:

 Disruption of supply chains due to pandemic-related lockdowns in China that limited

industry production. In 2022, it was unclear whether lockdowns would permanently
inhibit the industry’s long-term growth.
 In 2022, an economic slowdown due to interest rate increases aimed at moderating
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inflation appeared poised to intensify. Nevertheless, low unemployment and high

consumer spending suggested that such a slowdown might not be severe or long lasting.7

Industry Globalization
The Hybrid and Electric Vehicle Manufacturing industry was global. In 2022, analysts expected
imports to satisfy 38.1% of U.S. demand while 15.1% of industry revenue would derive from
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exports. Since 1993, the elimination of trade barriers in North America had boosted the
complexity of trade-flow patterns of vehicles through the U.S. For example, the United States–
Mexico–Canada Agreement (USMCA) treaty passed in 2020 strengthened incentives for
manufacturing components in North America. The USMCA replaced the North American Free
Trade Agreement (NAFTA) passed in 1993 that had smoothed the path for automakers to operate
in North American as if their supply chains did not cross borders. Specifically, companies
assembled cars in Mexico or Canada using U.S.-produced components and sold the final product
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5 Jack Daly, "New Car Dealers in the US," IBISWorld, September 2021, https://my-ibisworld-
com.ezproxy.babson.edu/us/en/industry/44111/industry-at-a-glance, accessed May 26, 2022.
6 Gavin Ross, "Global Car & Automobile Manufacturing," IBISWorld, July 2022, https://my-ibisworld-

com.ezproxy.babson.edu/gl/en/industry/c2531-gl/industry-at-a-glance, accessed August 6, 2022.

7 Shahool Al Bari, "Hybrid & Electric Vehicle Manufacturing," IBISWorld, January 2023, https://my-ibisworld-

com.ezproxy.babson.edu/us/en/industry-specialized/od4516/industry-at-a-glance, accessed April 5, 2023.

3

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in the United States. Meanwhile Japanese manufacturers – such as Toyota and Honda –

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dominated the U.S. market for hybrid and electric vehicles.8

In 2022, Japan, Canada, Germany and Mexico were the most significant foreign sources of hybrid
and electric vehicles purchased by U.S. consumers. By locating assembly plants in Mexico,
automakers lowered their labor costs below the higher levels they previously paid unionized U.S.
workers. IBISWorld estimated that the value of imports would increase at an annualized rate of

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13.3% to $13.9 billion over the five years to 2022. Due to increased U.S. growth, analysts forecast
imports to decline from 45.2% of U.S. demand in 2017 to 38.1% in 2022. 9

In 2022, IBISWorld forecast that China would be the largest market for hybrid and electric
vehicles with Canada, Germany, and Mexico remaining significant sources of demand. As with
imports, the USMCA treaty was a major reason for Canada's dominance in exports with most U.S.
auto manufacturing capacity in the Great Lakes region, on both the U.S. and Canadian sides of

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the border. China was a rapidly growing export market for U.S.-made hybrid and electric vehicles
due to its rapidly growing affluence, which was enhancing the country's standard of living. Thus,
analysts expected the value of industry exports (from the U.S. to any location) to increase at an
annualized rate of 17.6% to $4 billion over the five years to 2022.10

Industry Profitability
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Although more manufacturers introduced successful new models, hybrid and EV industry
profitability decreased between 2016 and 2021. Earnings before interest and taxes as a percent of
revenue declined from 3.6% in 2017 to 2.4% in 2022. Overall raw material and other input costs
as a share of revenue increased despite a decline in the cost of batteries during the period.
Moreover, labor costs rose during the same period as manufacturers hired skilled employees to
boost the sophistication of the technology in hybrid and EV products.11
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Table 2 below summarizes the major cost components for Hybrid and EV manufacturers in 2022.

Table 2. Hybrid and EV Manufacturer Financial Footprint

Cost Component Percent of 2022 Revenue

No

Purchases (e.g., engines, transmission, batteries, and radiators) 77.2

R&D and other administrative costs 12.4
Wages 5.6
Depreciation 2.2
Source: Created by case writers based on data from Shahool Al Bari, "Hybrid & Electric Vehicle Manufacturing,"
IBISWorld, June 2022, https://my-ibisworld-com.ezproxy.babson.edu/us/en/industry-specialized/od4516/industry-
at-a-glance., accessed July 16, 2022.

Future Projections
Do

8 Ibid.
9 Ibid.
10 Ibid.
11 Ibid.

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Analysts expected growth in the hybrid and EV industry to accelerate at an 11.7% average annual
rate to $154.7 billion between 2023 and 2028. The following tailwinds would propel growth:

 Higher oil prices and EV’s greater environmental friendliness would increase consumers’
motivation to switch to hybrid and electric vehicles.


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Companies would introduce new vehicle models that better satisfied consumers’
requirements – such as higher fuel economy, competitive prices, and increased range.
 Corporations were expected to campaign to reduce carbon footprints.
 U.S. government support of EV industry included a target of 50% of new car sales being
electric by 2030 and a 2021 law providing $7.5 billion to fund the construction of a
network of 500,000 EV chargers across the US and $7 billion to improve the EV supply
chain.12
 Government regulations across many nations aimed to increase the sale of Hybrid and

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EVs relative to GPV. Some set explicit targets to stop the sale of GPVs by a specific date.
For example, in June 2022, although it was unclear how specific countries would adopt
the plan, the European Union lawmakers voted to ban GPVs by 2035.13 Forecasters
expected industry employment to grow faster than revenues by 2028. As indicated below
in Table 3, IBISWorld predicted EV revenues would increase at an 11.7% average annual
rate between 2023 and 2028 while employment would grow more robustly at a 14.9%
average annual rate during that period.
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Table 3. EV Industry Revenues, Employment, And Enterprises (2021 to 2028F)

Revenue ($MM) Employment (Units) Enterprises (Units)

2021 53,139 26,671 199
2022 71,209 34,075 230
tC

2023F 88,816 41,841 260

2024F 105,841 50,047 294
2025F 120.747 58.274 331
2026F 133,910 66,681 374
2027F 145,312 75,211 423
2028F 154,734 83,805 477
Source: Prepared by case writers based on data from Shahool Al Bari, "Hybrid & Electric Vehicle Manufacturing,"
No

https://my-ibisworld-com.ezproxy.babson.edu/us/en/industry-specialized/od4516/industry-outlook, accessed
May 29, 2023.

Drivers of EV Industry Profit Potential

Analysts expected industry profitability to improve by 2027. Hybrid and EV makers would exert
pressure on battery makers to lower the price of batteries as EV production scale increased. This
Do

12Ibid.
13Kate Abnett, “EU lawmakers back ban on new fossil-fuel cars from 2035,” Reuters, June 8, 2022,
https://www.reuters.com/business/autos-transportation/eu-lawmakers-support-effective-ban-new-fossil-fuel-cars-
2035-2022-06-08/, accessed August 6, 2022.

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would decrease the cost of manufacturing and boost EV industry profitability causing industry

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EBIT as a percent of revenue to rise to 2.5% in 2027. One factor potentially reducing industry
profitability was an increasing number of rivals competing for this profit pool with the number of
industry enterprises expected to grow at an annualized rate of 5.2% to 198 companies by 2026.14

Many forces shaped industry profitability. The industry was capital-intensive and required
sophisticated manufacturing facilities and robust supply chains. Production facilities used

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specialized equipment and substantial floor space. New entrants required proprietary or licensed
vehicle designs. There were experienced work forces and long-term contracts with reliable parts
suppliers. Regulators enforced strict safety and environmental standards. Industry operators
invested in additional research and development, which they obtained either from internal
resources or through partnerships with other industry participants. Firms required access to
distribution and service networks that were subject to U.S. state regulations.

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Industry concentration was high with the top five participants controlling about 60% of the
industry revenue. In 2021 and 2022, the industry experienced high capacity utilization and large
order backlogs. Due to consolidation, dealer networks could negotiate lower prices with industry
operators. Moreover, higher consumer hybrid and EV demand enabled dealers to charge higher
prices. However, the significant segment of price sensitive consumers limited industry operators’
ability to preserve profit margins by raising prices to offset their higher costs. U.S. government
programs provided tax incentives for consumers to purchase hybrids and EVs, raised fuel
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efficiency standards that motivated industry operators to produce more hybrids and EVs, and
rewarded reductions in battery charging speed and greater battery efficiency.

Lithium-ion batteries had high energy density, which made them a critical force determining the
growth of the EV industry due to their long lifespan and good mileage range. Due to the limited
supply, EV makers that used lithium for their batteries were at risk of producing fewer batteries
than consumers demanded. By July 2022, other key inputs to the industry -- nickel, cobalt and
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palladium -- were also in short supply. Moreover, labor costs for U.S. industry operators
increased due to the tight labor markets for highly skilled technicians and engineers.

Industry operators weighed environmental and ethical considerations in obtaining EV battery

inputs. Extracting lithium damaged the environment. Moreover, due to the fraught political
climate in countries from which miners extracted it, cobalt was the ethical equivalent of war
diamonds,15 leading companies like Tesla to seek substitutes. Sodium – which had similar
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properties to lithium without its environmental extraction issues – was emerging as a substitute
for lithium.16

14 Shahool Al Bari, "Hybrid & Electric Vehicle Manufacturing," IBISWorld, January 2023, https://my-ibisworld-
com.ezproxy.babson.edu/us/en/industry-specialized/od4516/industry-at-a-glance, accessed April 5, 2023.
15 Audrey Wen, "A Comparison of the Environmental Consequences in the Production and Disposal Phases of
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Lithium-Ion Batteries and Gasoline," The National High School Journal of Science, February 18, 2022,
https://nhsjs.com/2022/a-comparison-of-the-environmental-consequences-in-the-production-and-disposal-phases-
of-lithium-ion-batteries-and-gasoline/, accessed May 26, 2022.
16 Fred Lambert, "Tesla is already using cobalt-free LFP batteries in half of its new cars produced," Electrek, April 22,

2022, https://electrek.co/2022/04/22/tesla-using-cobalt-free-lfp-batteries-in-half-new-cars-produced/, accessed

May 26, 2022.

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A sharp decline in the price of gasoline would increase GPV demand by making them more

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economically attractive to consumers than EVs which had higher purchase prices and lower
mileage ranges.17

Key Capabilities for EV Market Success

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The key capabilities required to succeed in the EV industry varied depending on the competitor’s
strategic group. Simply put, companies such as Tesla, that began as EV companies, had different
capabilities than GPV-focused incumbents that had recently added hybrid and EV products to
their portfolios.

How Customers Compared EV and GPV Vehicles

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EV manufacturers competed to satisfy customer purchase criteria more effectively than their
rivals did. EV makers first had to convince consumers that EVs were a better value than GPV
vehicles. To be sure, the high priced sports cars that Tesla used to gain entry into the EV market
aimed at a wealthier segment of consumers. However, mass-market consumers, which EV makers
needed to win over to reach significant scale, compared the relative performance of vehicles based
on factors such as up front and operating costs and range anxiety (the likelihood of running out
of fuel during a road trip). Specifically, consumers compared EVs and GPV vehicles based on
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customer purchase criteria (CPC) such as:

 Initial purchase price,

 Upfront investment to cut battery charging time,
 Cost of refueling,
 Maintenance cost,
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 Operating range, and

 Vehicle life.18

By the end of 2021, as illustrated in Table 4, consumers preferred hybrids to EVs. Matt
DeLorenzo, senior managing editor for Kelley Blue Book, told CNBC in December 2021, “With gas
at $5 a gallon [in some parts of California], [a hybrid would give you] a car with 30 to 50 miles of
electric range, and if you only commute 15 to 20 miles, you could use it mostly as an electric
vehicle. But if you have a road trip, or there’s a power failure, you have a gas engine to fall back
No

on.”19 Due to the higher EV upfront costs and the relatively limited number of refueling stations,
many in the public remained reluctant to switch to EVs with a hybrid vehicle offering the optimal
balance between the two options.20
Do

17 Shahool Al Bari, "Hybrid & Electric Vehicle Manufacturing," IBISWorld, January 2023, https://my-ibisworld-
com.ezproxy.babson.edu/us/en/industry-specialized/od4516/industry-at-a-glance., accessed April 5, 2023.
18 Mike Winters, "Here’s whether it’s actually cheaper to switch to an electric vehicle or not—and how the costs break

down," CNBC, December 29, 2021, https://www.cnbc.com/2021/12/29/electric-vehicles-are-becoming-more-

affordable-amid-spiking-gas-prGPVs.html, accessed May 26, 2022.
19 Ibid.
20 Ibid.

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Table 4. EV and GPV Comparison Of Initial Price, Refueling Cost and Convenience

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and Lifetime Cost
EV GPV Advantage
Average initial $56,437 $46,329 GPV was nearly
price $10,000 less

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expensive
Cost of Level 2 $2,000 Not required GPV did not require
charger level 2 charger
Cost of $10 to $45 to recharge battery $90 to $100 to EV was less
Refueling fill 20 gallon expensive to refuel
tank
Time to refuel 30 minutes at recharging 10 minutes GPV was much

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stations. 8 to 40 hours at home quicker to refuel
Number of U.S. 46.000 150,000 GPV had three times
refueling more refueling
stations stations
Lifetime cost $90,160 $94,540 EV lifetime cost was
(200,000 $4,380 less
miles) expensive
Source: Prepared by case writers based on data from Mike Winters, "Here’s whether it’s actually cheaper to switch to
op
an electric vehicle or not—and how the costs break down," CNBC, December 29, 2021,
https://www.cnbc.com/2021/12/29/electric-vehicles-are-becoming-more-affordable-amid-spiking-gas-prices.html,
accessed May 26, 2022.

Note: EV initial average price excludes tax credits ranging between $2,500 and $7.500 that apply to a manufacturer’s
first 200,000 vehicles sold.
tC

Yet for consumers who aimed to reduce their personal greenhouse gas emissions, EVs offered
clear advantages over GPVs. According to MIT professor, Jessika Trancik, “In most locations,
compared to [gas-powered vehicles], EVs produce emissions savings greater than 30%. Most
savings are greater depending on the geographic location, the electricity supply, and the vehicle
model. End of life [what happens to the vehicle after it can’t be driven] is more difficult to track.”
21
No

Key Capabilities Required to Prevail in the EV Industry

In order to satisfy CPC well enough to gain market share, EV makers needed to perform specific
business activities – either controlling these activities themselves, through partnerships with
other companies, or by acquiring companies that excelled at a specific activity.

Table 5 below describes how competitors used these capabilities to satisfy the CPC.
Do

21Peter Cohan, "Compared To Gas-Powered, Electric Vehicles Cut Greenhouse Emissions Over 30%," Forbes, May 26,
2022, https://www.forbes.com/sites/petercohan/2022/05/26/compared-to-gas-powered-electric-vehicles-cut-
greenhouse-emissions-over-30/, accessed May 26, 2022.
8

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Table 5. EV Capabilities Needed to Prevail on CPC

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EV Capability Effect of EV Capability on CPC
Battery Design, Manufacturing, and Satisfied growing EV demand, extended an EV’s
Distribution driving range; reduced charging time; and lowered
battery price

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EV Design, Manufacturing and Produced a vehicle with excellent styling, handling,
Distribution quality of construction, and lower service costs
Supercharger Network Design, Gave EV drivers the ability to recharge vehicles
Construction and Operation during a long trip
Software Development and Enabled drivers to receive frequent EV performance
Distribution improvements that enhanced ownership experience
EV Branding Created a consumer’s attachment to the brand that

yo
may make them more willing to tolerate EV product
flaws
EV Customer Service Fixed vehicle problems for consumers to minimize
downtime and extend product’s useful life
Source: Prepared by case writers based on analysis of competitor capabilities and CPC.

Key Capabilities of GPV-Focused Incumbents

op
GPV-focused incumbents brought a blend of competitive strengths and weaknesses to the EV
industry. Their competitive strengths included extensive skills in vehicle design, manufacturing,
supply chain management, marketing, and service. Their weaknesses included their heavy
financial dependence on selling GPVs and their relative lack of experience in EV design, battery
design, manufacturing, and supply chain management, and the lack of proprietary charging
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station networks.

By early 2022, GPV-focused incumbents aimed to build a significant position in the EV industry
by investing billions to bolster their EV weaknesses that would complement their GPV-focused
strengths.

For example, in 2021 and 2022, Ford, Nissan, GM, Toyota, and Volkswagen announced plans to
invest billions of dollars in battery electric vehicles (BEV) over the subsequent decade. As detailed
No

in Table 6, the amount pledged for EV by GPV-focused incumbent varied widely from about $11
billion to $100 billion.

Table 6. EV Investment Pledges By Incumbent Vehicle Makers

Incumbent Vehicle EV Investment Pledged ($ In Billions)

Maker
Ford 11.4
Do

Nissan 17.7
Toyota 35
GM 30
VW 100

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Source: Prepared by case writers based on Kevin Adler, "Toyota joins competitors in strategic commitment to battery

os
EVs,” Clean Energy News, January 21, 2022, https://cleanenergynews.ihsmarkit.com/research-analysis/toyota-joins-
competitors-in-strategic-commitment-to-battery-evs.html, accessed May 26, 2022.

As one of the most significant CPV-focused companies expanding its presence in BEVs, Toyota
blended existing and new capabilities to compete in the EV market.

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Toyota’s goal for 2030 was to generate 40% of its annual sales from BEVs. Based on its 2021 sales
of 9.5 million vehicles, Akio Toyoda (Babson MBA ’82), global president, said Toyota would
produce 3.5 million BEVs from 30 BEV models across Toyota and Lexus brands by 2030. Toyota
expected to tap into its existing auto design and engineering capabilities, its factory real estate,
and its manufacturing expertise to compete in the hybrid and EV markets.22

To meet its ambitious BEV production goals, Toyota would invest in new capabilities – such as

yo
EV motor, battery production, and the development of an EV supply chain. Analysts estimated
that new EV manufacturing facilities would cost Toyota $2 billion or more. Toyota expected to
invest between $2 billion and $2.5 billion to construct battery cell factories which needed to
satisfy precision and cleanliness standards not available in its existing auto facilities.23

Analysts expected Toyota to fall short of mastering the technical skills needed to manufacture
high quality battery systems. Specifically, they doubted Toyota could seal wires, install magnets
and bearings, and wire converters and inverters. After more than a decade of trying, other EV
op
makers such as Tesla (which never met its quarterly production forecasts) and GM (whose Chevy
Bolt battery packs caught fire in 2021) had not mastered these battery-manufacturing skills.24

Strategic Positions and Capabilities of Current Players

Tesla
tC

In 2021, Tesla controlled 15.7% of the market for hybrids and EVs. Martin Eberhard and Marc
Tarpening founded Tesla in 2003, inspired by AC Propulsion to develop the Roadster, its first
product. In 2004, Elon Musk contributed $6.5 million to its $7.5 million Series A funding round
taking over as CEO in October 2008. By 2021, Tesla produced electric vehicles, solar panels, solar
roof tiles, and battery storage products generating $53.8 billion in revenue (up 71% from the year
before) and a net income of $5.5 billion.25
No

Tesla’s initial product aimed at high-income individuals seeking a rapidly accelerating sports car
that signaled consumers’ commitment to renewable energy and a willingness to be on the cutting
edge of technology. Tesla’s Roadster appealed to this customer segment, as did its Model S and
Do

22 Kevin Adler, "Toyota joins competitors in strategic commitment to battery EVs,” IHS
Markit, January 21, 2022. https://cleanenergynews.ihsmarkit.com/research-analysis/toyota-joinscompetitors-in-
strategic-commitment-to-battery-evs.html, accessed May 26, 2022.
23 Ibid.
24 Ibid.
25 Ryan Roth, “Hybrid & Electric Vehicle Manufacturing,” IBISWorld, January 2021, https://my-ibisworld-

com.ezproxy.babson.edu/us/en/industry-specialized/od4516/industry-at-a-glance, accessed May 26, 2022.

10

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Model X. Tesla’s lower-priced Model 3 aimed at customers with lower incomes. In 2021, the

os
company announced plans to manufacture the Cybertruck. 26

After buying from Toyota and converting the NUMMI facilities based in their Fremont, California,
factory in 2010, Tesla expanded the geographic scope of its production facilities. In 2016, Tesla
began mass production of battery packs at Giga Nevada. It completed Giga Shanghai in March
2020 – Tesla expected this facility to perform the final assembly of the Tesla Model 3 and the

rP
Tesla Model Y. Prior to 2025, Tesla anticipated that it would construct Giga Berlin and Giga Texas.
27

In 2021, Tesla set itself apart by growing rapidly as its GPV-focused rivals reduced production.
Tesla boosted sales by 97% to 936,000 cars globally while Ford, GM, and Stellantis (the merger
of Fiat Chrysler and Peugeot) all sold fewer cars in 2021 than in 2020. In January 2022, some
analysts expected that, with factories in Berlin and Austin, Texas, coming online and a plant in
Shanghai ramping up production, Tesla’s 2022 vehicle count would more than double to two

yo
million.28

Tesla focused on a relatively small group of consumers who were willing to pay a price premium
to own a vehicle that they perceived to be at the cutting edge of innovation. Tesla customers were
willing to tolerate quality problems that owners of mass-market GPV vehicles found unacceptable.
Amazingly, its value proposition to consumers was the Tesla paradox -- despite the worst quality
in the industry, people loved their Tesla vehicles. As David Sargent, VP, Global Automotive at J.D.
op
Power said, “Tesla’s score of 250 problems per 100 vehicles was the highest of any manufacturer
in the study. Why the poor quality? It’s not the fact that they are making an electric vehicle. It’s
the basics. On the outside of the vehicle [there are problems with] door closures, panel fit, wind
noise, and paint quality. On the inside it’s the interior finish that’s not completely attached, rattles
and squeaking that are more noticeable in an electric vehicle because it’s quiet.”29

Yet these problems did not dim customer enthusiasm. Tesla scored 896 out 1,000 points, better
tC

than any other brand, according to J.D. Power’s Automotive Performance, Execution and Layout
Study. “Tesla drivers say it is hilariously fun to drive — it accelerates so fast, it’s instant power. It
holds onto the road because it has a low center of gravity. And they love the all-in-one dashboard,
the styling and the quality of the interior,” said Sargent.30

More so than its EV peers, Tesla set an industry standard for how to perform key capabilities
required to succeed in the EV industry. Despite notable weaknesses in manufacturing quality and
No

customer service, Tesla’s competitive advantages included the following:

 Battery Innovation. Tesla excelled at battery innovation due to its mastery of battery
design and manufacturing and its skill at sourcing battery raw materials – by 2022, Tesla

26 Ibid.
27 Ibid.
28 Jack Ewing, "Why Tesla Soared as Other Automakers Struggled to Make Cars," The New York Times, January 8,
Do

2022, https://www.nytimes.com/2022/01/08/business/teslas-computer-chips-supply-chain.html, accessed May 26,

2022.
29 Peter Cohan, "The Tesla Paradox: Highest Emotional Attachment, Lowest Quality, Says J.D. Power,” Forbes, July

25, 2020, https://www.forbes.com/sites/petercohan/2020/07/25/the-tesla-paradox-highest-emotional-attachment-

lowest-quality-says-jd-power/, accessed August 6, 2022.
30 Ibid.

11

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used cobalt-free battery technology in about 50% of its vehicles. In 2014, as GPV-focused

os
incumbents questioned whether the EV market would become significant, Tesla built its
own factories through a design partnership with Panasonic that enabled it to control its
battery supply rather than relying on third parties.
 Battery Supply Chain. In 2020, Tesla produced four all-electric vehicles — the Tesla
Models S, X, 3, and Y, all of which required significant battery capacity. In June 2014,
Tesla broke ground on its first battery Gigafactory outside Sparks, Nevada, and in 2020,

rP
it produced more batteries in terms of kWh than all other carmakers combined. As Tesla
added more battery manufacturing capacity, its cost of battery cells continued to decline
through economies of scale, innovative manufacturing, reduction of waste, and the simple
optimization of locating most manufacturing processes under one roof. Tesla’s batteries
outperformed the industry due to a number of factors: the quality of battery partner
Panasonic’s cells, Tesla’s continual improvement of the packs and the battery chemistry,
and its Tesla Powerwall 2, a DC energy storage system with a usable per battery capacity

yo
of 13.5 kilowatt-hours.
 Supercharger Network. In 2021, Tesla’s 30,000 charging stations (Superchargers that
ranged in power from 72 kW for Tesla’s Urban Superchargers up to 250 kW) created
efficient recharging opportunities for Tesla’s EV drivers. Compared to rival networks,
Tesla’s pay-as-you go Supercharger network had more locations, better-supported
customers’ road trips, and was easier to use.
 Software Updates. Tesla provided continuous over the air updates for its EVs. For
op
example, in June 2020, Tesla provided seven new software updates to improve traffic light
and stop sign control, backup camera functions, dashcam viewing capabilities, walkaway
door-lock functions, TuneIn operations, language support, and cabin camera
performance. Tesla engineers rewrote its software to operate on the types of
semiconductors that were available in 2021 rather than waiting for chipmakers to supply
what Tesla had originally ordered. 31
tC

 Branding. Tesla transformed the image of all-electric cars from small, slow vehicles to
fast vehicles that buyers craved. The performance/price ratio of the Tesla Model 3 and its
permanent magnet synchronous reluctance motor contributed to its high unit sales –
about three times that of the second bestselling EV in 2019.32

Along with its strengths, Tesla faced significant challenges, most notably weak vehicle quality and
strengthening competition. In December 2021, Tesla told regulators it would recall at least
475,000 cars for defects that could cause a rearview camera to fail and a front hood to open
No

unexpectedly. Moreover, regulators were investigating the safety of its Autopilot system. In
addition, as Stephen Beck, managing partner at cg42, told The New York Times, Tesla would keep
growing yet it faced competition that was getting stronger.33 There were also customer complaints
regarding Tesla’s responsiveness to customer requests for service.

31 Jack Ewing, "Why Tesla Soared as Other Automakers Struggled to Make Cars," The New York Times, January 8,
Do

2022, https://www.nytimes.com/2022/01/08/business/teslas-computer-chips-supply-chain.html, accessed May 26,

2022.
32 Carolyn Fortuna, "Tesla’s 5 Biggest Competitive Advantages," CleanTechnica, July 16, 2020,

https://cleantechnica.com/2020/07/16/teslas-5-biggest-competitive-advantages/, accessed May 26, 2022.

33 Jack Ewing, "Why Tesla Soared as Other Automakers Struggled to Make Cars,"The New York Times, January 8,

2022, https://www.nytimes.com/2022/01/08/business/teslas-computer-chips-supply-chain.html, accessed May 26,

2022.
12

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BYD

os
In 2022, Tesla fell behind Shenzhen, China-based BYD as the world’s largest EV maker. In 2022,
BYD sold over 911,000 EVs globally, and more than 946,000 Plug-in Hybrid Electric Vehicles
(PHEVs) for a total of 1.86 million vehicles, 560,000 more vehicles than Tesla shipped. BYD,
which started as a battery manufacturer, sold EVs at a much lower price than Tesla. BYD sold EVs

rP
and PHEVs for less than $29,000, whereas Tesla’s vehicles ranged in price between about
$43,000 and $120,000.34

BYD vehicles were particularly popular in China. As Tian Maowei, a sales manager at Yiyou Auto
Service in Shanghai said in January 2023, “EVs priced below [$29,000] are popular among white-
collar consumers because they want to save money. In China, BYD’s electric and plug-in hybrid
cars are easy to sell because they are fitted with high-performance batteries believed to be as good

yo
as those used by the premium carmakers.”35 In China, BYD’s batteries – which the company used
in its EVs and PHEVs – gave it a competitive advantage. Customers perceived its “blade lithium
iron phosphate battery packs” as “more energy dense and more resistant to overheating.”36

Tesla responded to its loss of EV market dominance with aggressive price cuts that motivated BYD
and other Chinese EV makers to follow suit. After Tesla cut prices, BYD, Nio, and XPeng also
slashed prices that contributed to a 14% drop in the BYD stock price in February 2023. Despite
the negative impact of the price cuts on profit margins, Analysts expected BYD to do well after
op
reporting 85% growth to more than 190,000 units in February. Two Citigroup analysts forecast
that BYD would “continue to gain market share” as rivals burned through cash, resulting in
industry consolidation.37

Toyota
tC

In 2022, Toyota controlled 16.9% of the automobile manufacturing industry’s revenue and made
significant efforts to protect the environment. To that end, in April 2021, Toyota announced that
by 2050, it intended to reach carbon neutrality by manufacturing electrified vehicles to reduce
CO2 emissions. 38

A key strategy for reaching its carbon neutrality goal was to reduce its battery costs. Specifically,
Toyota intended to reduce battery costs 30% by reducing the power consumption of EVs. In
No

addition, Toyota expected to use the batteries from its BEVs in its hybrid vehicles. By using these
batteries, Toyota expected to reduce CO2 emissions and increase efficiency. 39

34 “How much does a Tesla cost? 2023 Tesla car prices explained,” Energy Sage, February 28, 2023,
https://news.energysage.com/how-much-does-a-tesla-cost/, accessed April 5, 2023.
35 José Rodríguez Jr., "BYD sold more EVs in 2022 than Tesla, but the catch is that includes fully-electric cars and

plug-in hybrids," Jalopnik, January 4, 2023,

Do

https://jalopnik.com/byd-overcomes-tesla-to-become-worlds-largest-ev-maker-1849949551, accessed April 5, 2023.

36 Ibid.
37 Charlotte Yang, "Tesla’s China Price War Sparks $18 Billion BYD Rout: Tech Watch," Bloomberg, March 6, 2023,

https://news.yahoo.com/byd-18-billion-rout-shows-041446545.html, accessed April 5, 2023.

38
Shahool Al Bari, "Hybrid & Electric Vehicle Manufacturing," IBISWorld, January 2023, https://my-ibisworld-
com.ezproxy.babson.edu/us/en/industry-specialized/od4516/industry-at-a-glance, accessed April 5, 2023.
39 Ibid.
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Ford

os
Dearborn, Mich.-based Ford Motor was the second-largest U.S. manufacturer of hybrid vehicles
with 18.8% of the market in 2021. Within the hybrid vehicle market, Ford produced and sold the
Ford Fusion Energi, the Ford Focus and the Ford Milan, among others. In 2021, analysts expected
Ford to make its fuel-efficient EcoBoost engines available in additional vehicles and geographies.

rP
In 2021, the industry expected Ford to release an electric crossover vehicle, the Ford Mustang
Mach-E, with 332 horsepower. In 2021, Ford’s hybrid products generated about $3.3 billion in
revenue, a nearly 21% increase from 2020.40

By the end of 2021, Ford had generated considerable EV revenue and Wall Street expected
numbers to be considerably higher in the future. Through October 2021, Ford sold 21,703
Mustang Mach-Es. In November 2021, Adam Jonas, analyst at Morgan Stanley, forecast Ford's
BEV sales would reach 150,000 vehicles in fiscal year 2022 or 3.5% of its volume, rising by fiscal

yo
year 2030 at a 12.4% average annual rate to 1.225 million vehicles or 33.7% of its volume. After
announcing plans to invest $950 million in its Dearborn Rouge Complex to build the all-electric
2022 F-150 Lightning truck, Ford intended to invest $30 billion in EVs through 2025.41

By April 2022, Ford faced a considerable challenge: to build and deliver the nearly 200,000 F-
150 Lightning vehicles its customers had pre-ordered. For example, due to the global chip
shortage and the rising costs of battery raw materials such as lithium and nickel, Ford was in
op
danger of running short on the critical items required to make the F-150. Moreover, there was a
risk that Ford’s truck software might be flawed. Nevertheless, Ford enjoyed some advantages over
Tesla. Most notably, the F-150 Lightning’s price, at $40,000, was relatively low, it offered families
and businesses considerable storage space, and Ford expected to produce it at least a year ahead
of Tesla’s Cybertruck. 42
tC

Ford achieved these advantages through key strategic decisions it made in 2018. Rather than fall
further behind rivals such as Tesla, GM, and Rivian by designing an electric truck from scratch,
Ford decided to modify its existing F-150 and buy batteries designed by a supplier. Ford had to
solve technical problems to convert its existing F-150 into a battery-powered truck. Most notably,
Ford adapted to the fact that batteries weighed more than engines and were located on the floor
rather than under the front hood. To help solve these problems, Ford hired a software expert,
Doug Field, who had previously held senior positions at Tesla and Apple. Ford tasked Field with
managing the team that would build and update over the air software to operate the F-150’s
No

motors, manage its batteries, and entertain drivers and passengers.43

GM

40 Ibid.
Do

41 Phoebe Wall Howard and Jamie L. LaReau, "Ford to outsell GM in electric vehicles — but not for long," Detroit
Free Press, November 30, 2021, https://www.freep.com/story/money/cars/ford/2021/11/30/ford-gm-electric-
vehicle-sales-mustang-mach-e-bolt-hummer/8805365002/, accessed May 26, 2022.
42 Neal E. Boudette, "Jim Farley Tries to Reinvent Ford and Catch Up to Elon Musk and Tesla," The New York Times,

April 18, 2022, https://www.nytimes.com/2022/04/18/business/economy/jim-farley-ford-lightning.html, accessed

May 26, 2022.
43 Ibid.

14

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 APPLE’S ELECTRIC VEHICLE
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While GM was an EV leader in 2021, a recall of its Bolt, due to the risk that its batteries could

os
catch fire, was a major setback. In the first quarter of 2022, GM sold fewer than 500 Bolts with
EV sales rebounding to 7,300 in the second quarter. Despite the improvement, its second quarter
Bolt sales were 20% below the level it reached in the second quarter of 2021. 44

In 2022, GM set an ambitious sustainability goal to cease production of gasoline and diesel light-
duty cars and SUVs by 2035 and of becoming carbon neutral by 2040. To that end, GM planned

rP
to invest $27 billion into EVs between 2020 and 2025. GM planned to allocate much of this
investment to EV battery production and the manufacture of 30 different EVs. 45

GM also planned to create an EV charging network. By 2023, GM intended to build 2,000 fast
chargers at 500 locations roughly every 50 miles along U.S. highways at locations owned by Pilot
Company, owner of the Pilot and Flying J highway travel centers, and EVgo, an EV charging
network.46

yo
Honda
Japan-based Honda Motor was the country’s second largest automaker and its first to produce
and market a hybrid vehicle. By 2021, Honda controlled 18.2% of the hybrid and EV market.
Honda introduced a hybrid vehicle called Insight in 2000 that did not achieve the commercial
success of Toyota’s Prius until 2009, by which time Prius controlled a sizeable share of the market.
op
In the U.S., Honda competed through three models – the Clarity, Accord and Insight – that
IBISWorld anticipated would generate 2023 revenues of about $2.7 billion, 24.7% more than the
year before.47

In 2022, Honda set ambitious goals for EV production, aiming to build two million EVs by 2030,
manufacturing between 750,000 and 800,000 in North America. Honda planned to build small,
tC

medium, and large EVs in the relatively low price below $30,000. Honda's global head of
Electrification, Shinji Aoyama, said the company was working on a mini EV to be available in
Japan by 2024 and that Honda aimed to launch a North American full-sized EV platform in 2026.
In partnership with GM, Honda was building a third platform that would begin producing
medium sized EVs in North America by 2027. Honda was planning by 2024 to pilot innovative
battery technology for the project using solid-state technology rather than more volatile lithium-
ion materials that it intended to mass-produce by 2030. Furthermore, in 2024, GM planned to
begin producing two electric SUVs for Honda in North America based on GM's Cadillac Lyriq
No

platform using GM's Ultium batteries.48

44 Jack Ewing, "U.S. Electric Car Sales Climb Sharply Despite Shortages, The New York Times, July 14, 2022,
https://www.nytimes.com/2022/07/14/business/electric-car-sales.html, accessed August 6, 2022.
45 Shahool Al Bari, "Hybrid & Electric Vehicle Manufacturing," IBISWorld, January 2023, https://my-ibisworld-

com.ezproxy.babson.edu/us/en/industry-specialized/od4516/industry-at-a-glance, accessed April 5, 2023.

Do

46 John Rosevear, "General Motors will build a network of EV fast chargers at Pilot travel centers along U.S.

highways," CNBC, July 14, 2022, https://www.cnbc.com/2022/07/14/gm-evgo-and-pilot-company-to-build-

network-of-us-highway-ev-chargers.html, accessed May 26, 2022.
47 Shahool Al Bari, "Hybrid & Electric Vehicle Manufacturing," IBISWorld, January 2023, https://my-ibisworld-

com.ezproxy.babson.edu/us/en/industry-specialized/od4516/industry-at-a-glance, accessed April 5, 2023.

48Veronica Irwin, "Here's Honda's ambitious EV roadmap," Protocol, April 22, 2022,

https://www.protocol.com/bulletins/honda-ev-plan, accessed May 26, 2022.

15

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 APPLE’S ELECTRIC VEHICLE
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VW

os
In 2021, Wolfsburg, Germany-based VW Group announced its intention to invest $100 billion in
a strategy to build all its vehicles through a single BEV platform by 2030. Aimed at designing and
building EVs, deploying innovative battery technology, and expanding VW’s battery charging
network, the strategy would enable VW to generate more of its revenue from EVs, including

rP
mobility services and software, than from GPV-based products. Specifically, by 2030, VW
expected 50% of its output to come from BEVs, rising to almost 100% by 2040.49

VW’s ambitions to go all-EV by 2040 followed its vision of the auto industry’s future. In 2021, VW
expected the GPV market to decline by more than 20% over the next 10 years. At the same time,
VW expected BEVs would grow rapidly and overtake GPVs as a leading technology. With about
$1.5 trillion in 2030 revenue, VW expected software sales could add around one third on top of
the expected BEV and GPV sales, more than doubling the overall mobility market from around

yo
$2.6 trillion in 2021 to a projected $6 trillion by 2030.50

By 2026, VW planned to replace a blend of GPV and BEV-based platforms with a single BEV
platform. Specifically, in 2021, VW had four GPV-based platforms [MQB, MLB, MSB, and MMB]
and two BEV platforms [MEB for the volume brands VW, Seat, and Skoda and PPE (intended for
a 2022 launch) to be used by Audi, Porsche, and probably Bentley]. In 2026, VW planned to
replace these with a Scalable Systems Platform (SSP) that would build over 40 million EVs during
op
its life ranging from small city cars (114 horsepower) to supercars (1,140 horsepower).51

VW also had ambitious plans for building batteries and expanding its battery-charging network.
By the end of 2030, VW expected to operate six large battery factories in Europe with 240 GWh
of annual production capacity, starting with a joint venture with Sweden’s Northvolt that aimed
to begin producing cells in 2023. Other battery factories included one in Salzgitter, Germany
tC

which, in partnership with China’s Gotion High-Tech, would make battery cells by 2025 and a
third battery plant in Spain. VW’s goals for these factories were to control its battery quality,
production volume and cost. VW intended to build a charging network – dubbed Electrify
America – to expand to 1,800 locations by 2025 with 10,000 DC fast chargers. VW also planned
to install 18,000 DC fast chargers in Europe and 17,000 in China.52

VW aimed to shift from outsourcing vehicle software to writing its own. VW intended to create
software operating platforms for its MEB and PPE vehicles which would include infotainment
No

systems. Through a Seattle-based unit, VW planned to build its own automotive cloud platform.
By 2025, VW intended to launch a commercial autonomous ride-hailing mobility service in

49 Jonathan Gitlin, "VW Group’s 10-year plan: A single EV platform across all its brands," ArsTechnica, July 14, 2021,
https://arstechnica.com/cars/2021/07/vw-groups-10-year-plan-a-single-ev-platform-across-all-its-brands/,
accessed May 26, 2022
Do

50 Jay Ramey, "VW Business Strategy Bets on EVs, Autonomy and Mobility as a ServGPV," AutoWeek, July 14, 2021,

https://www.autoweek.com/news/green-cars/a37024644/vw-business-strategy-bets-on-evs-autonomy-and-
mobility-as-a-servGPV/, accessed May 26, 2022.
51 Jonathan Gitlin, "VW Group’s 10-year plan: A single EV platform across all its brands," ArsTechnica, July 14, 2021,

https://arstechnica.com/cars/2021/07/vw-groups-10-year-plan-a-single-ev-platform-across-all-its-brands/,
accessed May 26, 2022.
52 Ibid.

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 APPLE’S ELECTRIC VEHICLE
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Europe (followed by the US) through an autonomous driving system in partnership with Argo

os
AI.53

Finally, analysts expected quicker EV adoption in Europe than in the U.S. due to government
subsidies and higher fuel prices in Germany and Europe.

Apple’s EV: Long History and Strategic Intent

rP
Reports54 suggested that Apple first considered entry into the EV market before 2007. As
summarized below in Table 7, after 15 years, Apple had changed the leadership of its EV project
team many times and altered its product vision without ever producing a single vehicle. 55

Table 7. Key Apple Car Rumored Events: Pre-2007 to 2022

yo
Time Event

Pre-2007 Before iPhone, Steve Jobs considered building a car but in 2008 Jobs
decided against the car – preferring to focus on the iPhone
2010 Met with the manufacturer of the lightweight, inexpensive "V-Vehicle"
February Observers saw an Apple-leased van driving around Northern California
op
2015 with a camera rig and multiple cameras attached. Financial Times reported
that Apple was recruiting automotive technology and vehicle design experts
-- including former Mercedes-Benz Research and Development exec
Johann Jungwirth -- to work in a "top-secret research lab"
2015 Wall Street Journal reported that Apple had launched Project Titan in
which hundreds of employees were designing a minivan-like electric
tC

vehicle led by Steve Zadesky, Apple VP of Product Design

Product options included silent motorized doors, car interiors without

steering wheel or gas pedals, augmented reality displays, a LIDAR sensor
that protruded less from the top of a car, and spherical wheels. Apple
executives met with high-end car contract manufacturers such as Magna
Steyr
No

2016 Former Apple exec Bob Mansfield replaced Zadesky. “Dozens” of

employees departed as Apple Car changes focus to autonomous driving
2018 Apple analyst Ming-Chi Kuo reported that Apple Car will launch between
2023 and 2025
2019 Project Titan cut over 200 employees. Apple acquired Drive.ai, which
designed an autonomous shuttle servGPV

53 Ibid.
Do

54 In May 2022, Peter Cohan interviewed industry experts David Keith and Bryan Reimer of MIT and Dave Sargent of
J.D. Power. They said that Apple was very tight-lipped about its Apple Car project and the best possibility for
obtaining reliable facts about the project was to interview recently departed Project Titan team members – who would
be willing to violate their non-disclosure agreements. Since Cohan did not conduct such interviews, this section of the
case cited reports from other sources.
55 MacRumors Staff, "Apple Car," MacRumors, https://www.macrumors.com/roundup/apple-car/, accessed March

3, 2022.
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 APPLE’S ELECTRIC VEHICLE
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2020 John Giannandrea took over Project Titan from Mansfield who retired.

os
Apple's Kevin Lynch – also working on Apple Watch – joined Apple Car
team. Former Tesla executive, Doug Field, left Apple for Ford
2021 Apple entered into "early stage talks" with two Chinese companies -- CATL
and BYD – to supply Apple Car batteries. Since these talks fizzled, reports
hinted that Apple was talking with Foxconn and Advanced Lithium
Electrochemistry as potential suppliers. Other reports suggested that Apple

rP
was talking with Korean suppliers to make its lithium iron phosphate
batteries. Apple hired Ulrich Kranz, former BMW senior executive and
founder of Canoo, a self-driving vehicle startup. Apple hired two former
Mercedes executives with expertise in the mass production of vehicles,
vehicle steering, dynamics, and project management
2022 Reports that Apple was working on Apple Car Autopilot system with a
South Korean company

yo
Source: Prepared by case writers based on data from MacRumors Staff, "Apple Car," MacRumors,
https://www.macrumors.com/roundup/apple-car/. accessed May 26, 2022.

Apple’s EV Strategy
Apple’s initial efforts to design an EV, code-named Project Titan, followed its traditional approach
to product development. To that end, around 2014, Apple’s engineers designed an EV featuring
op
tight integration of hardware and software to offer customers a superior user experience. Apple
fielded a team of software developers, automotive engineers, rocket scientists and industrial
designers to reimagine the future of transportation experience. For example, the preliminary
design was an Autonomous Vehicle (AV) with spherical wheels and no steering wheel in which
the passengers faced one another. However, after encountering major hurdles in designing and
building many of the fundamental components, the team quickly shifted to finding a
manufacturing partner who would build the vehicle based on Apple’s design. In 2017, Apple scaled
tC

back its ambitions from building its own EV to developing AV driving technologies.56

Apple tried and failed to forge partnerships with many automotive manufacturers, ultimately
succeeding with VW. Apple’s unsuccessful partnership discussions with luxury and high-
performance automakers such as BMW, Mercedes Benz, and McLaren fell apart due to
disagreements over which partner would control the consumer experience and the data.
Negotiations with Nissan, BYD Auto from China and Magna-Steyr, a Canadian-Austrian
No

automotive supplier, failed to produce a formal partnership for similar reasons. Finally, Apple
collaborated with VW, taking advantage of permission from local regulators to test Apple’s
autonomous systems on VW T6 vans, which Apple used to shuttle employees between its
campuses in Silicon Valley.57

While Apple was extremely secretive about its EV plans and activities, by March 2022, reports
revealed that Apple intended to build a very expensive, fully autonomous vehicle that would lack
Do

56 Daisuke Wakabayashi, "Apple Scales Back Its Ambitions for a Self-Driving Car," The New York Times, August 22,
2017, https://www.nytimes.com/2017/08/22/technology/apple-self-driving-car.html, accessed May 26, 2022.
57 Jack Nicas, "Apple, Spurned by Others, Signs Deal With Volkswagen for Driverless Cars," The New York Times,

May 23, 2018, https://www.nytimes.com/2018/05/23/technology/apple-bmw-mercedes-volkswagen-driverless-

cars.html, accessed May 26, 2022.
18

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 APPLE’S ELECTRIC VEHICLE
BABSON COLLEGE – BAB741C

t
a steering wheel or pedals. Table 8 summarizes the key elements of the company’s strategy for

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that vehicle.58

However, by early December 2022, Apple’s plans appeared to have changed again. The launch of
the Apple’s EV was expected to be pushed back an additional year from 2025 to 2026. In addition,
Apple scaled down its ambition for its first EV offering. The company centered its original vision
of reimagining the automobile on an autonomous vehicle with spherical wheels, no pedals, or a

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steering wheel, but Apple replaced that model with a more traditional automobile with pedals and
a steering wheel. Analysts now expected Apple to offer its new EV for a price below $100,000
rather than the $120,000 for the original concept.59

While there was no indication that Apple had completely abandoned its original vision, it was
clear that Apple’s first offering would be less radically different from current EVs from
competitors.

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Table 8. Apple’s Autonomous Car Strategy

Dimension of Rumored Apple Car Strategic Choice

Strategy
Vehicle Fully autonomous self-driving vehicle (with no steering wheel and no
functions pedals) that will drive without user intervention. Riders would sit along
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the sides of the vehicle rather than in standard front and back seats.
Pricing Price to be “very high-end”, “significantly higher” than a standard EV.
Chassis Possibly based on Hyundai's E-GMP electric vehicle (BEV) platform if
Apple concluded a partnership agreement. Apple Car on this platform
could have up to two motors, five-link rear suspension, an integrated
drive axle, battery cells that provided range over 500km on a full charge,
tC

and can charge up to 80% within 18 minutes through high-speed

charging. A high performance model based on E-GMP could accelerate
from 0-60 miles per hour in less than 3.5 seconds, with a top speed of
160 miles per hour.
Infotainment Could be based on a large iPad-like touch screen in the middle of the
vehicle, which would be integrated with Apple's current devices and
services, enabling users to interact with the central panel.
No

Processor Developed by Apple engineers, the processor would consist of neural

processors that handle the artificial intelligence requirements of
autonomous driving. Apple could call the chip "C1" which it would base
on the A12 Bionic processor.
Safety Apple intended to be safer than Tesla or Waymo EVs. To that end, it
would build in redundancies and backup systems to avoid driving
system failures.
Do

58 MacRumors Staff, "Apple Car," MacRumors, https://www.macrumors.com/roundup/apple-car/, accessed March

3, 2022.
59 Mark Gurman, “Apple Scales Back Self-Driving Car and Delays Debut until 2026”, Bloomberg News, December 6,

2022, https://www.bloomberg.com/news/articles/2022-12-06/apple-scales-back-self-driving-car-and-delays-
launch-until-2026?leadSource=uverify%20wall&sref=gni836kR#xj4y7vzkg, accessed August 6, 2022.

19

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 APPLE’S ELECTRIC VEHICLE
BABSON COLLEGE – BAB741C

t
Charging and The Apple Car could be compatible with the Combined Charging System

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Battery (CCS), a standard used for charging electric vehicles that Tesla, BMW,
Ford, General Motors, Kia, Hyundai, and others supported. Apple’s new
battery could use a “mono-cell” design to "radically" reduce the cost of
batteries and increase the vehicle's range.
Launch Date Launch date reports ranged from 2024 to 2028. Reuters expected
production to begin in 2024; Bloomberg's Mark Gurman wrote that

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Apple was aiming to launch in 2025; Ming-Chi Kuo estimated a launch
date between 2025 and 2028 or later.
Source: Prepared by case writers based on data from MacRumors Staff, "Apple Car," MacRumors,
https://www.macrumors.com/roundup/apple-car/, accessed May 26, 2022.

Apple Car: Logic of Value Creation –> Value Delivery –> Value Capture

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In order for a car to make sense for Apple, Cook realized that he would need clear and compelling
answers to three questions:

 Value Creation. Could Apple create so much more value than rivals that consumers
would scramble to buy the Car? Would it appeal to the mass market?
 Value Delivery. Did Apple already have – or could it create through hiring,
partnerships and/or acquisitions – the capabilities needed to create such value for
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millions of consumers? How should Apple structure its value chain?
 Value Capture. Could the company generate enough discounted cash flow by selling
vehicles and related software and services at prices well above their costs to earn
significant profits in the business?

In pondering these questions, Cook considered research reports by Morgan Stanley analysts.
Their conclusion was that a fully autonomous vehicle could unlock a large growth opportunity.
tC

Specifically, the analysts estimated that the number of hours people spent inside cars would rise
at a 3.9% compound annual rate from over 600 billion hours in 2022 to nearly 1.2 trillion by
2040.60 Apple had the potential to boost its revenues by selling entertainment, information,
videoconferencing and e-commerce services to those people – a market estimated to grow from
$1.1 billion in 2022 at a 38.1% average annual rate through 2030.61

In addition, Apple could expect to benefit from strong consumer interest in Apple’s EV. That was
No

because Strategic Vision’s New Vehicle Experience Study (released in September 2022) found that
26% of customers would definitely consider an Apple Car as their next vehicle even though they
did not know when it would be available. Apple lagged behind Toyota and Honda in the survey
while surpassing Ford and Tesla. Moreover, 50% of Tesla owners surveyed said they would
definitely consider an Apple Car for their next vehicle.62

60 Chris Ciaccia, "Apple vs. Tesla: Can the world's most valuable company compete against Elon Musk?"
SeekingAlpha, January 16, 2022, https://seekingalpha.com/news/3788026-apple-vs-tesla-can-the-worlds-most-
Do

valuable-company-compete-against-elon-musk, accessed May 26, 2022.

61 61 "Electric Vehicle Infotainment Market Size, Share & Trends Report," Grand View Research,

https://www.grandviewresearch.com/industry-analysis/electric-vehicle-ev-infotainment-market, accessed March 4,

2023.
62 Max McDee, "Quarter of new car buyers would go for an Apple car, study finds," Arena EV, September 13, 2022,

https://www.arenaev.com/quarter_of_new_car_buyers_would_go_for_an_apple_car-news-710.php, accessed
April 5, 2023.
20

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Permissions@hbsp.harvard.edu or 617.783.7860
 APPLE’S ELECTRIC VEHICLE
BABSON COLLEGE – BAB741C

t
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Apple also faced challenges in manufacturing its EV. In October 2022, reports circulated that
Apple was in discussions with potential manufacturing partners, most notably LG Electronics,
Canadian auto-parts manufacturer Magna, and Kia, which would make the Apple Car at a plant
in Georgia. Were that deal to fall through, Apple considered the option of acquiring EV startup
Cannoo.63 Meanwhile, discussions regarding a battery collaboration between Apple and two
Chinese companies – BYD and CATL – unraveled in October 2021 over Apple’s demand to be

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exclusive customer for their advanced lithium ion phosphate (LFP) batteries in the U.S.64

Given these challenges, Apple might have considered acquiring a more established EV
manufacturer that could benefit from Apple’s marketing talent and deep pockets. For example,
Lucid Motors, a maker of high-priced, stylish sedans was a possible partner. Although Lucid was
burning through cash – as of February 2023 its $4.9 billion would last for about 12 months -- in
2022, it produced 7,200 vehicles priced between $87,000 and $107,000 and expected to deliver

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between 10,000 and 14,000 vehicles in 2023.65

Finally, by October 2022, considerable regulatory roadblocks to AV deployment in the U.S.

created uncertainty. That month, Ford and VW said they would shutter Argo AI, a self-driving
startup saying, “the technology was a long way off.” Congress had failed to amend regulations to
encompass consumer and legal protections for self-driving cars. Meanwhile, U.S. National
Highway Traffic Safety Administration officials gave no indication of whether or when they would
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approve initial petitions to allow a few thousand AVs on U.S. roads.66

Cook asked himself four questions: Could Apple build a car that regulators and customers would
consider safe enough to operate without human intervention? Would Apple win enough
customers willing to buy its car and the related services? Should Apple enter the industry? If so,
should it enter on its own or should it seek partners such as Lucid?
tC
No

63 Allison Stone, "Where is Apple manufacturing its electric car?," Jerry, October 12, 2022,
https://getjerry.com/questions/where-is-apple-manufacturing-its-electric-car, accessed April 5, 2023.
64 Mike Wuerthele, "Apple Car battery talks breaking down under weight of Apple's demands," Apple Insider, October
Do

22, 2021, https://appleinsider.com/articles/21/10/22/apple-car-battery-talks-breaking-down-under-weight-of-

apples-demands, accessed May 26, 2022.
65 Jack Ewing, "Lucid Steps Up Production as Supply Chain Problems Ease," The New York Times, February 22,

2023, https://www.nytimes.com/2023/02/22/business/lucid-electric-cars-earnings.html, accessed April 5, 2023.

66 David Shepardson, "Self-driving cars face uncertain path to U.S. deployment," Reuters, October 28, 2022,

https://www.reuters.com/business/autos-transportation/self-driving-cars-face-uncertain-path-us-deployment-
2022-10-28/, accessed April 5, 2023.
21

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Permissions@hbsp.harvard.edu or 617.783.7860