As we hinted over the past few weeks, Apple Inc. (NASDAQ:AAPL) may have shelved plans to develop and market an “Apple Car”—an iCar if you like—officially known as “Project Titan.” The company has issued one of its strongest hints that it will not be producing a car anytime soon. It seems that investors are pleased with this course of action, and AAPL stock has gained over 1.5%.
Apple stock gains may not be necessarily related to the growing evidence that Project Titan has fizzled out. Indeed, Apple Inc. never officially acknowledged or even discussed making a car or selling it under its brand. So the idea that Apple stock had gained anything from the Apple Car rumors fails the test of evidence. In short, the rumors hinted that Apple was intent on developing a project to build a driverless electric car to compete with the Tesla Motors Inc (NASDAQ:TSLA) “Model S.”
Frankly, the list of Tesla competitors is long and rather awe-inspiring. Bayerische Motoren Werke AG (BMW) (FRA:BMW) , Daimler AG (Mercedes Benz), and Porsche, to mention just three luxury brands, will have electric or partial-electric cars in their production lineup before 2020. Other competitors include General Motors Company (NYSE:GM), Ford Motor Company (NYSE:F), Nissan Motor Co Ltd, Toyota Motor Corp, Kia Motors Corporation, Hyundai Motor Co, and Fiat Chrysler Automobiles NV (NYSE: FCAU).
These companies could make life very difficult for Tesla. What, if anything, could Apple, —with no car manufacturing experience—offer car buyers? Nothing that Mercedes hasn’t already developed.
Apple Shareholders Should Be Relieved
Apple shareholders should be downright happy that Apple has not chosen the automobile route to bring back some original “iPhone” luster to Apple stock. Indeed, The New York Times wrote that, for lack of progress, Project Titan has been redirected. Bob Mansfield, who was heading Project Titan, has shaken up the division. What Apple might, do, rather wisely, is to design the complete driverless system and then license it out to various manufacturers. (Source: “Apple Is Said to Be Rethinking Strategy on Self-Driving Cars,” The New York Times, September 9, 2016.)
Apple has learned a thing or two about business. No doubt AAPL stock has reflected it. Such is the case of a quality stock and a quality company that it knows when to hold back, not just when to push ahead. Apple managers have therefore observed that starting a new car brand in the second decade of the 21st century lacks the kind of wisdom that the simple elegance of the iPhone design reflects about the way it does business.
What Apple Knows Best is Software
Software is how Apple plans to compete with Tesla. The plan allows the company to become a supplier to most other existing and established car brands. The latter might choose Apple’s turnkey driverless package solution rather than invest in their own, saving billions in development costs. In other words, Apple’s logic is this: let the car brands make the cars and design the mechanicals while Apple supplies the software.
It seems that Bob Mansfield, who returned to Apple reporting directly to CEO Tim Cook, personally decided to redirect Project Titan’s efforts. (Source: “Apple Shuts Some Elements of Electric Self-Driving Car Project, Lays Off Workers,” The Wall Street Journal, September 9, 2016.)
So rather than designing a complete vehicle from A to Z, Apple will likely develop a complex and comprehensive self-driving software solution for many cars. It might be a kind of “super carplay” Apple solution, which might finds its way to a large number of vehicles. The software solution approach is best for Apple stock also because, this would not prevent Apple, in a second step, to formally partner with a car manufacturer. Why, Apple might even buy a car company should it so desire; it certainly has the cash.
Apple’s new direction for Project Titan has not in any way diminished its interest in the automotive sector. But Apple stock should ultimately benefit from the less onerous and less risky approach. The one certain thing is that Apple wants to get into the automotive sector, but that it will only choose the IT route to compete in it. Apple’s plans concerning the Apple Car or the iCar are ultimately bullish for AAPL stock.