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The Apple car joins Facebook’s phone, Microsoft’s fitness tracker and Amazon’s second headquarters as a dashed company dream that will not be missed.
Oddly, Apple never confirmed the existence of its electric, self-driving car project. The cost of development was not made explicit in expenses. Yet when the project was shuttered, the share price rose 1 per cent. Even without any details it is obvious that jettisoning a decade-long undertaking with no release date should help performance.
It is a good time to pull back on investment in driverless cars. McKinsey puts the driverless private passenger vehicle market at a possible $400bn by 2035. But so far, the industry’s collective efforts have cost more than $160bn and revenues are paltry.
Cruise, the self-driving car subsidiary of General Motors, targeted annual revenues of $1bn by 2025. Last year, the business reported sales of just $102mn amid a $3.4bn loss. After a Cruise driverless car hit a woman at a San Francisco intersection in October, GM recalled its vehicles. It plans to cut spending on the unit.
There are other signs that investment is slowing. In the last quarter, US chip designer Nvidia revealed that revenue from its automotive business fell 4 per cent year over year.
In some regards, Apple had the right idea. The market for EVs has ballooned since its project began and self-driving vehicles are now on the streets. With over $155bn in cash at the plan’s inception, Apple had the funds and reputation to pose a credible threat to the car industry.
The company has ramped up research spend. In the last fiscal year, R&D costs were equal to 7.8 per cent of revenue, up from 3.3 per cent in 2014. But it has not been willing to fund a new supply chain for mass car production.
Scrapping a project with high upfront costs makes sense. Competition has grown. Tesla has been forced to cut its prices. Car making is a low margin business to begin with. Apple’s ebitda margin last year was 34 per cent. Tesla’s was 9 per cent. So was GM’s. Cutting costs is also a priority for Apple as sales growth slows. Still, putting a stop to the car may not result in a dramatic reduction in operating expenses. The team is reportedly moving to artificial intelligence, another expensive endeavour.
That suggests the research could continue under a different guise. Companies such as BMW and Ford enable cars to sync to smartphones, allowing drivers to play music or unlock their vehicle. Eventually, that could extend to autonomous driving controls too.
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