If you have a huge following and enough cash on hand, why not build an electric car? Or better yet, why not build a driverless car? Although the plan is yet to be confirmed officially, everyone in Silicon Valley knows that Apple Inc. (NASDAQ:AAPL) is indeed building a car. For Apple stock investors, here are five things you need to know about the upcoming “Apple Car” (or “iCar”).
Project Titan Exists
This might seem like a rumor, but it really isn’t. When a company is hiring automotive engineers, leasing testing facilities, and talking to contract automakers, what else could it possibly be up to?
Apple’s ongoing plan to develop electric vehicles (EVs) is codenamed “Project Titan.”
Earlier this year, EV giant Tesla Motors Inc (NASDAQ:TSLA) founder and CEO Elon Musk said that Apple’s electric car project is an “open secret”: “It’s pretty hard to hide something if you hire over a thousand engineers to do it,” he said. (Source: “Tesla’s Elon Musk Says Apple Electric Car Is an ‘Open Secret’,” Fortune, January 12, 2016.)
Competition Is Intense
Having a brand name that has a huge following is a good start in the electric vehicle business, but there is another company that has just as big a following—Tesla.
Tesla just had the biggest consumer product launch in history with its “Model 3.” After one week of taking deposits, the company received more than 325,000 reservations. The most impressive part is that Tesla achieved this without any advertising or paid endorsements. (Source: “Tesla First Quarter 2016 Update,” Tesla Motors Inc, May 4, 2016.)
At the same time, traditional automakers have also started making electric vehicles and Tesla is already delivering more than 50,000 EVs per year. Apple will not be the first mover this time.
But that doesn’t mean it won’t have a chance at succeeding. It’s just that with so much competition, Apple’s brand name alone is not going to be enough. The company will need to unveil a product that has just as much appeal (other than its brand name) as its competitors’ products.
Apple Could Use a Contract Automaker
The “Apple Car” is not going to be a Ferrari. By that I don’t mean the Apple “iCar” won’t be fast; I’m just saying that Apple will likely not be producing the car in-house. But that really shouldn’t come as a surprise. Even the “iPhone” is made by electronics contract manufacturing company Foxconn Technology Group.
So, who will be making the “Apple Car”? Well, the company was reportedly in talks with German automakers Daimler and BMW, but those discussions fell through. Now, there is a report that Apple might be partnering with Magna Steyr, one of the largest contract automakers in the world. (Source: “German Report Claims Apple Car Could Be Manufactured in Austria By BMW/Mini Maker Magna,” 9to5Mac, April 18, 2016.)
You might not have heard of Magna Steyr, but the Graz, Austria-based company is responsible for building some high-end vehicles. It has been assembling BMWs and Mercedes-Benzs for many years.
Steve Jobs Ditched Apple Car
If you think that the company thought of this project just recently, you’d be wrong. In fact, Apple executives discussed the possibility of making a vehicle back in 2008, but the company’s co-founder and CEO, Steve Jobs, did not proceed with the idea.
According to Tony Fadell, known as “one of the fathers of the iPod,” he and Jobs exchanged ideas about a potential “iCar” on a number of occasions:
“We had a couple of walks,” he said, adding that they liked to pose hypothetical questions to each other, such as “If we were to build a car, what would we build? What would a dashboard be? And what would this be? What would seats be? How would you fuel it or power it?” (Source: “Steve Jobs Considered Building an Apple Car in 2008,” Bloomberg, November 4, 2015.)
Back then, the U.S. auto industry was on the verge of collapse and Apple had just launched its iPhone. Steve Jobs decided not to move forward with the idea at the time to focus on the iPhone instead.
It Won’t Boost Apple Stock’s Short-Term Performance
Building a car is not easy. Many have tried, but few have succeeded. However, Apple is no ordinary player. Quite a few of its products have turned out to be revolutionary.
Know that it could take a while before you and I see an “Apple Car” or “iCar” roaming the streets, though. The expectation right now is that the company could be introducing the product in 2020. By then, Tesla’s “Gigafactory” will be running at full capacity.
So in the next year or so, don’t expect the “Apple Car” to do much positive to the company’s financials. On the flip side, we shouldn’t forget Apple’s huge following. If the company manages to have as great a product launch as the Tesla Model 3, it could give a much-needed boost to AAPL stock.