With Apple apparently hiring a lot of people with car backgrounds, we are seeing speculation that Apple is working on a car.
While there are areas in the car experience where Apple could help with creating a better experience, I do not believe that it makes business sense to become a car manufacturer itself.
What Apple could improve
A major sore point with modern cars is the bad integration of the additional complexity modern computers bring into the car. The problem here is that the car companies have not yet fully realized the extent to which software is a fixed cost, and so continue to have a quite modular approach while software would work best with an integrated approach: you should have one software interface, and use consistent UI controllers for every car. No steering wheel options with different controls, no choice of screens, no choice of input controllers. All of this makes the design work more difficult and so increases the risk that the result is mediocre.
Car companies can actually learn from the Apple Watch the core lesson: provide options in the physical, haptic, emotional world, but keep the software interface identical across all variants.
One of the important tasks for an improved interface on the car would be to clearly separate the driving and the standing interface: reduce what you can do while driving, essentially only allow selections from lists, and use a touchscreen with a nice keyboard for configuration while standing ( or make this available via an app on the phone)
Apple cannot do wonders
But this is also why the user interface is not really that important: as the driver, you cannot do any involved tasks without becoming so distracted that it could kill you. This severely limits the interaction you will have; when you only interact once every half hour, the interface quality matters a lot less. Of course there are a lot of people who see it as their right to text while driving, but this is so dangerous behavior that it should be banned, not encouraged.
This will only change when the car will drive itself on at least the easy route parts, and so allows the driver to do other things. But when this happens, we can as well use our phones directly, we no longer need a special interface optimized for low attention.
Electric cars are the best bet
For a new entrant, electric cars are the best bet to get started, as the greater freedom to design a car, and the newness of the technology means that they can enter a less crowded market, and it means the incumbents are likely hampered by old assumptions. But they utterly depend on their batteries: currently they are only viable in the luxury segment, where you can spend $80000 on a car. The battery cost is still eating up the advantage from having a much simpler motor, and we are some way from batteries being cost competitive with petrol. A Nissan Leaf battery will set you back $5500 plus installation, and is guaranteed for 60000 miles. This comes to 5¢/km ( 8¢ per mile). A Tesla with its larger battery currently costs twice as much for a 8 year prepaid option, and easily 6 times as much when needing replacement today. So everybody is working on getting the battery price low enough to become price competitive. It will need to reduce by a factor of 2 to 3 until we are there. And this could be hard: Not only do batteries only improve at a rate of 7% annually, and we are already able to achieve way more than half the theoretical limit in capacity, it is also that more than half of the price of the battery are for the raw materials, and you would need more than 50 times as much lithium as currently produced worldwide were all new cars suddenly electric.
Given these constraints it is rather unlikely that battery technology will become price competitive for the mass market within the next 15 years or so. And until then the market for electric cars will be a luxury market without massive subsidies, and we are not affluent enough for many people to be willing to part with a $10000 surcharge for a better car. Sales of high end cars are currently in the 1 to 2 million annually range, compared with 85 million total production.
Is Apple really working on a car?
This makes the market quite small by Apple standards: they realized a bit more than $200 per iPhone, assuming they could make $5000 per car they would need to sell more than 8 million cars to match the iPhone.
Given these economics, I doubt that Apple is actually intending to become a car company, I find it much more likely that Apple wants some car prototypes they can use to create an optimized experience, so that they can sell to car companies an outstanding car multimedia module. This is a much better strategy for Apple: they do not burden themselves with a lot of low margin manufacturing investments, they do not risk the brand for car related problems, and they concentrate fully on the part where they can deliver the best value. Considering Tim Cooks vow to double down on secrecy, I suspect that these rumors are a smoke screen to throw us off what Apple is actually doing.