Reuters recently reported that Apple aims to produce a passenger car by 2024, grounded in proprietary battery technology. While the timing of an Apple car or a software licensing approach for traditional automakers is hard to predict, we continue to believe it’s likely Apple has a business related to autonomous vehicles in the next decade.
Previously, we described Apple’s go-to-market strategy in AV as a coin toss between licensing autonomous technology to existing automakers and building an Apple-branded car. Based on our insights from outside the Reuters story, we continue to believe the company’s final approach is yet to be determined. Regardless of their approach, it is clear to us that Apple has ambitions in the transportation space, which could result in meaningful revenue for the company, the emergence of Tesla’s first true competitor, and further evidence that traditional auto is in a tight spot, absent any partnership with a tech giant.
Apple’s been working on a car for a long time
The concept of Apple building a car is not news. Project Titan, the company’s self-driving car project started around 2014. At the time, Apple’s approach to auto had three potential avenues. First, build an Apple-branded car. Second, build software and license it to other automakers. Third, acquire Tesla.
- Build an Apple-branded car. This was initially the most-likely outcome, as the company aggressively hired hardware engineers and car designers to prototype an Apple Car. By 2016, it became clear that building a “me-too” electric car was not aligned with Apple’s culture of making transformative products. At that time, they recognized the future of mobility would be anchored in autonomy. As a result, they dramatically reduced the size of the Titan team to mostly software and AI personnel.
- Build licensable software. A second less aggressive approach was to license software for autonomous vehicles – the brains behind the car. The challenge with this approach is it embeds Apple’s intelligence inside the design of another automaker. This creates two challenges. First, Apple does not have control of the hardware-software-services stack, and second, the vehicle look and feel is in the hands of a third party.
- Acquire Tesla. We believe this was on the table five years ago but fell short because both companies felt strongly about design. While this combination would have been powerful, it unfortunately was a fairy tale.
Titan’s direction still uncertain
As evidence that Apple’s car segment is still years away from producing a road-ready product, the company recently changed the head of Titan from SVP of hardware, Bob Mansfield, to John Giannandrea, head of AI. The group is still run by Doug Field, who spent time at both Apple and Tesla. We view the change of leadership from a hardware- to an AI-focused lead as a sign that the group’s direction is still being formulated.
A car is on the table
The bigger question is whether Apple will have a car on the road ten years from now. We continue to view this as a likely scenario, given Apple has invested in mobility for the last seven years, and the auto market is massive and at the cusp of a transformation. This is Apple’s wheelhouse: find a big market that a competitor has already made progress in, enter the market a few years later, and revolutionize it.
Why would Apple build a car?
- Large addressable market as cars become computers on wheels. It’s an undeniable truth that cars will be electric and autonomous. The very concept of a car will fundamentally change to a computer on wheels, just as the concept of a phone has changed to a computer in your pocket. The addressable market is massive. Assuming over 80m cars are sold annually at an average of $25,000, global auto is a $2T market. For perspective, Apple’s expected revenue for the current fiscal year is $315B.
- Design. Apple’s emphasis on design is a hallmark of the company and a key differentiator for any strong car brand.
- Apple knows the anatomy of the future car. Apple has arguably the best technology around silicon, software, cameras, and neural engines. While Apple knows a lot about batteries, it’s debatable if they have a competitive advantage. Regardless, the company has differentiated technology in many of the core building blocks of the car of the future.
What would the rollout look like if they do build a branded car?
Initially, the most likely rollout would involve several hundred Apple Cars driving in US cities for a year or two before becoming more widely available. Apple could either sell cars directly to consumers or offer a subscription-like transportation service similar to Zoox or Tesla robotaxi. It’s highly unlikely Apple will build cars, and more likely they outsource manufacturing to an OEM partner.
The philosophical question on safety
An Apple-branded car creates an intense philosophical dilemma for Apple; do you build products that may result in the loss of life? In 2019, almost 39k people lost their lives in auto accidents in the US. We believe this dynamic is important to Tim Cook, who may be reluctant to release a standalone car given this risk. For tech companies, this dynamic is amplified given when they are involved in an auto fatality, it generates media attention, evidenced by any fatal Tesla accident or the Uber self-driving accident. The reality is that cars are dangerous, and tech will make them safer. That said, tech companies need to get more comfortable with negative press that will come in building towards this better future.
Apple TV, a cautionary tale
For years, we predicted Apple would launch an Apple-branded television. All of the markings were there. The TV experience was broken, an Apple-branded TV fit nicely within the company’s product road map, and Apple hired people from the TV panel industry to build a prototype. To cap it off, Steve Jobs even mentioned “an integrated television set… I finally cracked it.”
In the end, I was wrong. Apple never did a TV. As talk of Apple Car gains momentum, I’m reminded of a valuable lesson I learned the hard way: just because Apple is working on a product doesn’t mean it will see the light of day.