Last week, The New York Times reported that Apple (NASDAQ:AAPL) was "rethinking" its ambitious car project, known as Project Titan. The Mac maker has been working on automotive technologies for the better part of two years, and the project has been turbulent from the get-go.
The company has now laid off "dozens" of employees, according to the report, as Apple shifts the direction of the rumored Apple Car. Bob Mansfield, who was previously Apple's long-standing hardware engineering chief, has been coaxed out of retirement to oversee Project Titan.
More importantly, Apple is seemingly shifting its focus away from the design and production of a car and instead emphasizing autonomous vehicle technology. In other words, Apple is less interested in the hardware, and betting big on the software. This comes just a couple months after Bloomberg reported a similar strategic shift.
Apple will get back to the hardware...eventually
The odd part about this supposed shift in Project Titan's direction is that it's very un-Apple. Developing hardware and software that are deeply integrated together has always been Apple's strategy in just about every product that it makes. The company rarely ever develops software for someone else's hardware, so it wouldn't make sense for Apple to drop its hardware ambitions altogether.
In contrast, Alphabet's (NASDAQ:GOOG) (NASDAQ:GOOGL) ambitions are quite transparent and in line with its long-standing strengths in software and services. The company's presumed market strategy is also fairly obvious: Alphabet would develop the autonomous driving technology and then seek to license it out to automakers and probably attempt to create some type of platform for other services.
While Apple may be focusing most of its development efforts on the software, there should be little doubt that the company would still be deeply interested in the hardware. Not only would it be a design challenge for chief design officer Jony Ive, but the opportunity for Apple to enter the auto market still must be predicated on Apple actually manufacturing the car (either by itself or via contract manufacturers).
But manufacturing cars in volume is also an incredible challenge. Apple has plenty of resources that it can allocate toward this capital-destroying business. In fact, Apple's capital expenditures are already greater than what many automakers spend on capital investments. Apple shouldn't underestimate how difficult the production side will be, so it should still be very much focused on both hardware and software together. Unless, of course, it has decided to adopt a contract manufacturing model: Apple was rumored to have approached contract auto manufacturer Magna Steyr.
Investors still have many years before Apple will directly acknowledge its auto ambitions, so the recent focus on self-driving software will probably be relatively short-lived. Eventually, Apple will have to get back to working on the hardware.
Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Evan Niu, CFA owns shares of Apple. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), and Apple. The Motley Fool has the following options: long January 2018 $90 calls on Apple and short January 2018 $95 calls on Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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