Please ensure Javascript is enabled for purposes of website accessibility

Apple, Inc.'s Car Ambitions Are Lost

By Evan Niu, CFA – Oct 17, 2016 at 9:34AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Should the tech titan stop and ask for directions?

Image source: Apple.

It's been about two years since Apple (AAPL 1.56%) reportedly greenlit Project Titan, its secretive electric car project. Over that time, investors have seen a steady stream of leaks regarding the status of the project. Just over the past couple of months, there seems to be doubt as to whether or not the company actually wants to build a car. Instead, Apple is said to be changing the strategic direction, perhaps pursuing a very un-Apple strategy of focusing only on autonomous driving software instead of an integrated package.

Bloomberg is out with a fresh report this morning, reiterating this theme and providing additional details.

A fork in the road

The current thinking within the Project Titan team does not include physically building an Apple Car. Instead, Apple is indeed focusing more heavily on making an autonomous driving system. However, the tech titan is keeping the idea of designing its own car on the table for now. The company has set an internal deadline of late next year to make the final call of which direction to take.

In no uncertain terms, Project Titan sounds like a mess. The team's leadership has faltered and turned over, there is disarray around what strategic direction is best, there have been rounds of job cuts and resignations, and there would be significant margin dilution concerns for investors. If Apple does choose to build a car, it would have to face the incredible capital inefficiency associated with automotive manufacturing.

Be more like Alphabet?

If the challenges associated with building a car prove insurmountable and Apple indeed only pursues the software route, its strategy would more closely resemble Alphabet's (GOOG 2.65%) (GOOGL 2.81%). Of course, Google has been working on its own self-driving car project for the past seven years, giving it quite a head start. Over that time, Google has now accumulated 2 million miles of self-driving experience for its vehicles, which primarily rely on LIDAR systems to perceive the environment.

Google recognized early on how hard auto manufacturing is, and as such has chosen to partner with existing companies to build limited numbers of prototypes. It should be clear that once Google feels that its autonomous technology is ready, it would choose to license the technology to other companies instead of building the vehicles and selling them to consumers. That would be the platform play, which worked wonders with Android.

Unlike Android, Google could probably extract a hefty licensing fee since cars are so expensive. Alternatively, it could use the Android-esque strategy of offering the software for free in order to grab as much market share as possible. But licensing software to run on other people's hardware is about as un-Apple as it gets, and it goes against Apple's core principle of designing integrated hardware and software.

For now, Apple's car dreams appear utterly lost.

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 and 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. 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.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.