Today, in the fourth installment of my series on self-driving cars, I'm going to look at the greatest consumer technology brand of all time: Apple (NASDAQ:AAPL). The company keeps details of its self-driving car program under wraps, but leaks from current and former employees, as well as recent public comments from CEO Tim Cook, have shed some light on Apple's efforts. Let's take a look at the company's strategy, execution, and how it currently stacks up in this high-stakes race.
Some may wonder why Apple would want to enter the car business, which is characterized by low margins, high capital requirements, fierce competition, and high regulatory hurdles. These are the exact opposite characteristics of leading technology companies, Apple included. Apple's trailing-12-month operating margin was 26.9%, far above those of General Motors (6.1%) and Ford (2.3%).
The reason Apple must work itself into the self-driving vehicle space is that the car of the future will more likely resemble an electronic device, such as a computer or smartphone, than a traditional car. In that respect, an Apple car would fit in nicely with the company's current ecosystem. One could easily envision Apple bundling a car with an iPhone and Apple Music subscription, for instance.
The market for self-driving vehicles will also likely be big enough to move the needle for a company as large as Apple, which has a $750 billion market cap and reported net sales of $215 billion in fiscal year 2016. The Boston Consulting Group estimates partially and fully autonomous vehicle sales could reach $42 billion by 2025 and $77 billion by 2035. And those numbers are just for physical autos -- a potential ride hailing mobility-as-a-service offering could be worth much more.
Apple was late to the self-driving-car game when compared with Alphabet (NASDAQ:GOOG) (NASDAQ:GOOGL) and Tesla (NASDAQ:TSLA). Its self-driving car project, named Project Titan, began in 2014, a full five years after Alphabet's program, and the same year in which Tesla introduced autonomous features in all its cars.
Still, with its vast cash hoard, Apple reportedly hired roughly a thousand engineers and automobile executives to get Project Titan off the ground. Despite that massive investment, Titan reportedly was soon beset with problems including strategy disagreements, supply chain issues, and infighting.
In mid-2016, the company shifted strategy, replacing former Ford engineer Steve Zadesky with Bob Mansfield, a leader of the original iPad design team, to head Project Titan.
The company quickly shifted strategies away from building an actual vehicle, opting to focus on building the underlying autonomous technology. Bloomberg reported in July 2016 that Apple hired Dan Dodge, creator of Blackberry Ltd.'s QNX car operating system, to head an Apple team developing autonomous programs, sensors, software, and simulators. According to Bloomberg, Apple has given the strategy until the end of this year to show meaningful progress.
The strategy is basically a shift away from trying to become Tesla -- as in, producing a full vehicle -- and more toward trying to become Google's Waymo, which currently leads in autonomous technology but (at least for now) partners with existing automakers.
Cook told Bloomberg Television in June that "... we’re focusing on autonomous systems and clearly one purpose of autonomous systems is self-driving cars. There are others. We sort of see it as the mother of all AI projects. ... Autonomy is something that's incredibly exciting for us, but we'll see where it takes us. We're not really saying from a product point of view what we will do, but we are being straightforward that it's a core technology that we view as very important."
The fact that Apple abandoned its hardware-oriented strengths shows just how difficult it is to develop and manage an automotive supply chain -- making Tesla's achievements to date all the more impressive.
Recent testing and developments
In April 2017, Apple attained a permit to test a self-driving system on California roads. The company outfitted three Lexus RX 450h SUVs with its technology, and one was recently spotted driving Highway 101 near Palo Alto. Apple also asked the state of California to further tighten its self-driving test rules, which would make more data publicly available, which could reveal more data to Apple, allowing it to catch up to rivals more quickly.
Don't count Apple out
Some may doubt Apple's ability to catch up to Waymo and Tesla in self-driving vehicles, given its late start and change in direction. However, Apple has historically benefited from what NYU professor Scott Galloway calls Apple's second mover advantage:
They weren't the first into object-oriented computing (the mouse), they weren't the first mp3 player, they weren't the first mobile phone. But they look at something, they improve upon it, they weigh it, and they come in and make it more user friendly.
-- Quote via Business Insider
Will self-driving vehicles continue Apple's second-mover success? It will surely be difficult to outcompete both Alphabet and Tesla's Elon Musk at the same time, not to mention other automakers and ride-hailing services all getting into the self-driving game.
Still, with Apple's brand strength, history of innovation, billions of dollars available for research and development, and second-mover modus operandi, I wouldn't count the iPhone maker out.
Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Billy Duberstein owns shares of, and The Motley Fool owns shares of and recommends, Alphabet (C shares), Apple, Ford, and General Motors. Billy Duberstein owns shares of General Motors. The Motley Fool owns shares of and recommends Alphabet (A shares) and Tesla. The Motley Fool has a disclosure policy.