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Silicon Valley emerges as transportation hub

Tim Higgins and Adam Satariano
Bloomberg News

“Detroit vs. Everybody” is a popular T-shirt in the hometown of General Motors Co. and Ford Motor Co. these days.

Yet it might as well read “Silicon Valley vs. Motor City” as the San Francisco Bay Area emerges as a center for global transportation innovation. That was brought home last week, when people familiar with the matter said Apple Inc. is developing an electric vehicle and has devoted several hundred people to the project.

“It’s the hot spot of development and that has in a big way spilled into the autos space,” said Jeff Schuster, senior vice president for forecasting at LMC Automotive. “These are the new suppliers, these are the new auto companies.”

Silicon Valley companies are getting into transportation from cars to drones to space ships — and pioneering new business models in the industry. Google Inc. is investing in self-driving cars, drones and satellites. Facebook Inc., too, has been working on drones.

Elon Musk — who spends time in both Silicon Valley and Los Angeles — is building Space Exploration Technologies Corp., which is designing and manufacturing rockets and spacecraft. Musk’s other high-profile venture, Tesla Motors Inc., is shaking up the electric-vehicle market. He also has an idea for superfast pods — called a HyperLoop — to run between cities like San Francisco to Los Angeles.

Meanwhile, Uber Technologies Inc., the mobile car-booking company based in San Francisco, is changing the way people move around major cities and has a valuation of $40 billion, more than double the market value of Fiat Chrysler Automobiles NV.

Driving the interest of Silicon Valley companies in transportation is how the industry is ripe for disruption and new technology. Apple, which has a $178 billion cash hoard, can afford to spend big on capital-intensive projects.

“If you look at our lives, cars are still an area that haven’t fundamentally changed in 100 years,” Gene Munster, an analyst with Piper Jaffray Cos., said in an interview. “When technology people think about opportunities, they think about what we use every day that hasn’t changed over time. That’s why this has been a ripe topic for tech companies to explore.”

Traditional automakers, of course, aren’t ignoring technology. Many are working on driverless car technology and have opened offices in Silicon Valley, including Ford’s new lab in Palo Alto, which is headed by a former mid-level Apple engineer. Daimler AG has a team of engineers working near its Stuttgart headquarters on what the future of transportation may look like.

“We’re getting into the software-defined vehicle phase, where the software is becoming so important and becoming more and more differentiating for the actual product, the vehicle, that all of a sudden it’s not just up to the traditional car manufacturers anymore,” said Thilo Koslowski, vice president and automotive practice leader at Gartner Inc.

The revelation last week that Apple is working on an electric vehicle, came as a surprise to observers in Detroit. Engineers are marveling that Apple was offering $250,000 signing bonuses to poach Tesla workers, according to Musk.

Apple has long researched battery technology. Last year, Apple introduced CarPlay, a software system that integrates iTunes, mapping, messaging and other applications for use by automakers.

The company has batted around the idea of developing a car for years. Phil Schiller, Apple’s senior vice president of marketing, said in 2012 court testimony that executives discussed building a car even before it released the iPhone in 2007. Mickey Drexler, an Apple board member and head of J Crew Group Inc., also said in 2012 that Apple co-founder Steve Jobs had wanted to build a car.