RPT-INSIGHT-Apple, BMW in courtship with an eye on car collaboration – Reuters

Posted: Sunday, August 02, 2015

(Repeats story unchanged)

By Edward Taylor and Julia Love

FRANKFURT/SAN FRANCISCO, July 31 (Reuters) – BMW
and Apple may rekindle a courtship put on hold after an
exploratory visit by executives of the world’s top maker of
electronic gadgets to the headquarters of the word’s biggest
seller of premium cars.

Apple Chief Executive Tim Cook went to BMW’s headquarters
last year and senior Apple executives toured the carmaker’s
Leipzig factory to learn how it manufactures the i3 electric
car, two sources familiar with the talks told Reuters.

The dialogue ended without conclusion because Apple appears
to want to explore developing a passenger car on its own, one of
the sources said.

Also, BMW is being cautious about sharing its manufacturing
know-how because it wants to avoid becoming a mere supplier to a
software or internet giant.

During the visit, Apple executives asked BMW board members
detailed questions about tooling and production and BMW
executives signalled readiness to license parts, one of the
sources said. News of the Leipzig visit first emerged in
Germany’s Manager-Magazin last week.

“Apple executives were impressed with the fact that we
abandoned traditional approaches to car making and started
afresh. It chimed with the way they do things too,” a senior BMW
source said.

The carmaker says there are currently no talks with Apple
about jointly developing a passenger car and Apple declined to
comment. However, one of the sources said exploratory talks
beteen senior managers may be revived at a later stage.

It is too early to say whether this will be a replay of
Silicon Valley’s Prometheus moment: The day in 1979 when Apple
co-founder Steve Jobs visited Xerox’s Palo Alto Research Center
where the first mouse-driven graphical user interface and
bit-mapped graphics were created, and walked out with crucial
ideas to launch the Macintosh computer five years later.

BMW has realised next-generation vehicles cannot be built
without more input from telecoms and software experts, and Apple
has been studying how to make a self-driving electric car as it
seeks new market opportunities beyond phones.

STAFF CHANGES

Since the visit, there has been a reshuffle at the top of
BMW, with Harald Krueger, appointed BMW Chief Executive in May,
in favour of establishing his own team and his plans for BMW by
year end, before engaging in new projects, a person familiar
with his thinking told Reuters.

A further complication was the departure of BMW’s board
member for development Herbert Diess, who played a leading role
in initial discussions with Apple. He defected to Volkswagen
in December.

Diess, who declined to comment for this piece, oversaw the
development of BMW’s “i” vehicles which are built using light
weight carbon fibre, using a radical approach to design and
manufacturing.

Car technology has become a prime area of interest for
Silicon Valley companies ranging from Google Inc,
which has built a prototype self-driving car, to electric
car-maker Tesla Motors Inc.

Diess has said the German auto industry needs to undergo
radical change because consumers are demanding more intelligent
cars and anti-pollution rules mean the next generation vehicles
will increasingly be low emission electric and hybrid variants.

In 2030, only two generations of new cars away in auto
manufacturing time scales, only a third of vehicles will be
powered by a conventional combustion engine alone, experts
predict.

“It means that in two cycles we will shut down two thirds of
our engine manufacturing,” Diess told a panel discussion in July
last year, adding that the value chain for new electric cars is
already shifting, with vehicle batteries made mainly in Asia.

“The second part is that the car will become intelligent,
part of the Internet,” Diess continued. “And the strong players
in this area are in the United States, in the software
development area. We will surely need to find alliances in this
field.”

Germany has two years to prove that it can hold its own
against new entrants when it comes to shaping the future of
luxury vehicles, Diess said.

THEM AND US

Carmakers including BMW have already developed next
generation self-driving cars, vehicles which need permanent
software updates in the form of high-definition maps allowing a
car to recalculate a route if it learns about an accident ahead.
The technology is moving ahead faster than the legal and
regulatory rules which would allow large-scale commercial
availability.

Earlier this year, BMW’s new R&D chief Klaus Froehlich said
his company and Apple had much in common, including a focus on
premium branding, an emphasis on evolving products and a sense
of aesthetically pleasing design.

Asked, in general terms, whether a deeper collaboration
beyond integration of products like the iPhone would make sense,
Froehlich initially said BMW would not consider any deal that
forces it to open up its core know-how to outsiders.

“We do not collaborate to open our eco systems but we find
ways, because we respect each other,” Froehlich told Reuters.

BMW will keep in mind the needs of the customer, and what
the company’s core strengths are, when it considers the merits
of entering any strategic collaboration, Froehlich added.

Peter Schwarzenbauer, BMW’s management board member in
charge of the Mini brand as well as digital services declined to
comment on possible talks with Apple in an interview earlier
this year.

But he said: “Two worlds are colliding here. Our world,
focused on hardware and our experience in making complex
products, and the world of information technology which is
intruding more and more into our life.”

The winners will be those companies that understand how to
build intelligent hardware, he said, adding it made sense for
carmakers and tech firms to cooperate more closely.

“We need to get away from the idea that it will be either us
or them … We cannot offer clients the perfect experience
without help from one of these technology
companies,” Schwarzenbauer said. That dialogue is well underway,
he stressed. [ID: nL5N0W52KI]

With $202.8 billion in cash, Apple has the resources to
enter the automotive market on its own, said Eric Noble,
president of the Car Lab, a consulting firm in Orange, Calif.

The tech giant would have an edge on the dashboard, its
CarPlay infotainment system connecting iPhones to cars, but
would be at square one with the rest of the car, Noble said.

If Apple decided to sell a car it could make sense to find a
partner to help with industrial scale production, retail and
repair, since demand for such a vehicle could be high.

There are no estimates for potential Apple car sales but the
brand and its products command a loyal following. So if only 1
percent of Apple’s annual iPhone customers decided to order a
car, it would need to make 1.69 million vehicles.

That’s more than the 434,311 vehicles Jaguar and Land Rover
produced last year. Even BMW Group, which made just over 2
million cars last year, would struggle to free up capacity.

(Additional reporting by Eric Auchard; editing by Philippa
Fletcher)

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