In Focus: The Apple Car Is Not What You Think
There are several ideas floating around Wall Street, and if any of these ideas were to come to fruition, they would bring big gains to shareholders. But some of the rumors seem so out there that I have to scratch my head every time I hear them. While I had planned to go through several rumors that investors should watch out for, I only got to one this week. Let's discuss the first rumor, the Apple Car.
It is an unpopular opinion, but I don't believe Apple ($AAPL) will produce a car. I've heard many rumors on what Apple is going to come out with over the years, and the majority of them have been bad ideas that never materialized.
After the release of the iPhone, people said that Apple was going to make an iPhone with a physical keypad to attract the Blackberry crowd. The iPhone with a keyboard never came, what we got instead was a bigger iPhone, better known as the iPad. Then there was the Apple Television, not to be confused with Apple TV, which was already in the market. There were big rumors that Apple was going to make its own television. It's been years, and still no Apple Television.
The Apple car rumor has been around since the mid 2010s and it's been on again and off again. When the rumor heats up or someone posts an Apple car concept online, investment media gets excited and that gets Apple investors excited. What investors should think about when they hear about an Apple Car is the infrastructure required to manufacture and sell cars at scale, this should quickly subdue the excitement.
The last three years of Tesla's ($TSLA) success has allowed people to forget the years of struggle along with quarter after quarter of missed targets. Tesla's struggles served as a reminder to me that starting and maintaining an automobile company is very difficult. Though the media loves the headline that Apple is making a car, I think Apple is fully aware that it is bigger than just making a car. It's also about manufacturing at scale, setting up service centers, establishing relationships with body shops, and setting up a charging network. Completing all of this could put a serious dent in Apple's $190 billion in cash and marketable securities that it has on its books.
What I think Apple is trying to do is be the brains of cars in the future. Tesla has changed the car ownership experience. Software updates to enhance features or provide new features was never a part of a car company's mandate, until Tesla. Tesla's CEO Elon Musk has always been clear that Tesla is a tech company, not a car company. Ford ($F) and GM ($GM) on the other hand are not tech companies, they are 100% car companies. My belief is that Apple is developing a product that will help companies like Ford and GM become more like a tech company, which should make their cars feel like a piece of tech instead of just a boring car.
What I imagine is, if Apple is able to get Project Titan right, it will provide the hardware and software needed for autonomous driving to auto manufacturers. It will also provide the information / entertainment system and the car itself will be an Apple wallet, which would replace toll passes. Companies like Ford and GM are going to be drawn to this offering because it will help them become more like a tech company, while keeping their auto manufacturing focus.
Can Apple Pull it Off?
I'm skeptical as to whether or not Apple can pull off what I think they're trying to do. At its core Apple is a hardware company. Autonomous driving is a hardware and software problem. I don't know if Apple has the ability to solve the software side of things. It should be noted that over the years Apple has quietly acquired small artificial intelligence and machine learning
companies like Drive.ai, IKinema, Xnor.ai, Voysis, and Curious AI to name a few. The multi-billion dollar question is can Apple sew all of the knowledge and intellectual property it acquired together to make a product for automobiles? I don't know that it can.
Another concern that I have about Apple's ambitions is its place in the market. Apple is a luxury brand, and I imagine that Apple would charge auto manufacturers a premium price for their offering. I believe this is why Apple's talks with Hyundai and Kia stalled. When I think of car buying for the 99%, I think of someone wanting a Porsche, but buying a Hyundai because that's what they can afford. A Hyundai powered by Apple, could put the Hyundai automobile out of the budget of Hyundai's target market.
Then there is the walled garden, which in this case could come back to hurt Apple's quest to enter the automobile industry. If or when someone purchases a car powered by Apple, does the purchaser have to have an iPhone, iPad, or Mac product? Will the car play nicely with those who have Android phones? Will any of that even matter? If a car powered by Apple is created for those in the Apple ecosystem like a HomePod, a car company would take on a big risk dedicating even a portion of cars to Apple in hopes that iPhone users purchase it.
Who Really Knows
Right now it's all just speculation. It seems that Apple wants to get into the automobile industry, and for some people they believe the way in is by creating an Apple Car. I believe Apple has seen Tesla's struggles of starting a new car company and building cars at scale and wants nothing to do with that. A car manufactured by a traditional car company and powered by Apple is what I think Apple is going for.
In any case, I think the powered by Apple automobile project is a fairly safe project for the company to take on. If they stop working on it tomorrow, the company will still sell enough iPhones and service subscriptions to make investors happy. If they succeed in their automobile ambitions, it's another win on top of an already huge pile of wins.