For close to a decade, there was buzz on the Street about
Apple’s
plans to enter the market for electric and autonomous cars. As far back as 2015, The Wall Street Journal reported that Apple would be shipping an EV by 2019. As recently as 2021, the Journal reported that
Hyundai Motor
was looking for a site in Georgia to build a new plan to build Apple cars.
But it turns out, as Bloomberg first reported on Tuesday, there will be no Apple cars. The company is terminating “Project Titan,” as the effort was reportedly known, and shifting some of those resources to focus on developing generative artificial-intelligence software.
CEO Tim Cook said on the most recent Apple earnings conference call that the company was spending “a tremendous amount of time and effort” on AI, and that it will “share details of our ongoing work in that space later this year.” The Street has interpreted that comment to suggest Apple will talk about its AI strategy at the Worldwide Developers Conference, which is expected to take place in June. Among other things, analysts expect to see a new, AI-powered version of the company’s Siri voice interface.
Apple’s decision to give up on the Apple car underlines the Street’s concerns about the company’s minimal revenue growth in recent quarters. Apple shares were down 1.3% Wednesday, at $180.30, increasing their decline for the year to 6.4%. The stock is still up 24% over the past 12 months.
Wall Street had generally been skeptical of Apple’s automotive aspirations, and for good reason. For one thing, the company has no expertise in manufacturing—it outsources production of its hardware products like the iPhone and the MacBook to third parties.
It was also never clear what advantages Apple would bring to the automotive market, other than a reputation for design expertise and a valuable brand. Analysts wondered whether Apple could compete effectively in an increasingly crowded market for EVs—and the promise of autonomous cars seems to keep edging into the future.
Barron’s addressed the potential for an Apple car in a December cover article focused on the company’s recently flat top-line growth. Among other things, the piece noted that the best case for an Apple car was that it is one of the few product categories that are big enough to move the needle on Apple’s nearly $400 billion in annual sales. But Morgan Stanley analyst Erik Woodring told Barron’s at the time that it wasn’t clear why Apple would want to enter a hypercompetitive market with dozens of entrants in China alone. “I’m not sure what the point of differentiation really is,” he said.
In a new research note, Woodring writes that the cancellation of Project Titan is “a positive development” that will allow the company to direct assets “to more important initiatives like Gen AI,” while also demonstrating cost discipline. Woodring notes that he had ascribed zero value to the Apple car in his financial model.
“It’s long been our brief that while the AV/EV market is over $1 trillion…Apple’s EV/AV efforts were too far behind well-funded competitors to represent a viable path toward commercialization and product differentiation,” he writes. Woodring maintains his Overweight rating and $220 target on Apple stock.
UBS analyst David Vogt has mixed feelings about the termination of the Apple car. He writes that while the move could result in “a small financial savings,” he adds that it “closes the door on a potentially large [total addressable market] that would diversified Apple’s revenue…and likely re-accelerated top-line growth.” Vogt keeps his Neutral rating and $190 target price.
Wedbush analyst Dan Ives was one of Wall Street’s more enthusiastic supporters of Apple’s automotive ambitions. In a 2021 research note, he wrote that there was a 60%-65% chance that Apple would unveil a stand-alone car by 2025. That, of course, didn’t play out.
Ives writes in a new research note that the cancellation of the project is a “modest disappointment,” positioning it as a “another black eye” for the EV market.
“Apple saw the writing on the wall to rip the band-aid off this Project Titan,” he writes. “Cook recognized that the focus now should be AI, with the gold at the end of the rainbow view of EVs a dramatically different picture today from where it was over the past five years.”
Ives sees the move as a boost for Apple’s AI ambitions, and repeats his Outperform rating and $250 target price on Apple shares.
Write to Eric J. Savitz at [email protected]
Read the full article here