The notion of Apple (AAPL 1.98%) expanding into the auto industry and releasing a fully autonomous vehicle isn't new. In fact, for years, investors, analysts, and the public have speculated about potential Apple electric car projects. Could the company be close to deploying a fully autonomous vehicle in the next few years? In this segment of Backstage Pass, recorded on Nov. 22, Fool contributors Jason Hall, Rachel Warren, and Toby Bordelon discuss.
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Jason Hall: Man, this is the one that just won't die. Seven years, five different leaders and Project Titan. I guess it's still around, that's Apple's car project. Now, here's the thing, this is a low-margin, high-competition, very cyclical industry. Apple's the king of profits, their gross domestic product is larger than like 95% of the countries on the plant. This is a wonderful company, very profitable.
Here's the question. Rachel I want you to answer this one first. Is this really the big bet that Apple should be making?
Rachel Warren: I'm excited about this. Maybe I'm the only one here. But I feel this would be a very cool thing for Apple to do. I know they've been talking about it for a really long time. So far, nothing has come to fruition.
But there's a pretty incredible team that's working on this Project Titan. It's being headed up by Kevin Lynch, who's the engineer that was largely behind the Apple Watch.
Hall: He was the lead on the Apple Watch.
Warren: Apple has also hired former Tesla executives to fill really important positions in the Project Titan program. I think I know the company is targeting full autonomy by 2025. Reportedly, this was according to CleanTechnica, "Reportedly, Apple has designed its own self-driving computer chip based on the processors used for the iPhone, iPad, and Mac. It intends to start retrofitting the new shift toward test fleet of self-driving cars in California and begin real world testing next year. It will be equipped with a sophisticated cooling system to remove excess heat from the processor while the cars are in operation."
I just think that this would be an amazing thing if Apple is able to bring a fully autonomous vehicle to the road, in what is that? Just a little over three years, we're almost into 2022.
I think that would be amazing. I think it could potentially disrupt the progress of legacy automakers like Ford as well as big companies like Tesla. I think if you have the right team, and you have the right technology, and you have these incredible minds that are working together to produce this. I could definitely see, I mean there's been so many rumors about where will Apple go next over the years.
I think it's very much an industry disruptor and it has the potential to continue being one for all eternity at this rate. But I could very easily see Apple management potentially targeting, trying to expand into the autonomous vehicle space in a really big way. I don't know, I'm excited to see what happens with this, but maybe that's just me. [laughs]
Hall: I ran out of excitement four years ago, six years ago. Toby what do you think here, weigh in. By now, hasn't Tesla already, they've already got autonomous.
Warren: Not fully autonomous I don't think.
Toby Bordelon: Autonomous in the sense that, my car will drive itself as long as I stay focused on the road and keep my hands on the wheel and don't do anything unexpected sure. I don't know why Apple wants to make a car, Jason. It doesn't actually make sense to me.
If you look at this like, I don't think the story has anything to it, unless we're talking about maybe they're going to announce they are developing a car that will come to production in a year or two.
These things take time, if they were going to actually produce one anytime soon, I think they'd have a factory. We would know about that because it's hard to hide factory, for cars. You've have to line up suppliers, those things leak. When you talk about all the suppliers, you need to make a car that's going to get out.
Hall: You think making iPhone's sophisticated and has ton of suppliers, try building a car around an iPhone.
Bordelon: Exactly, and think about every time Apple's introducing a new iPhone month or so ahead of time, you always get that leak oh, that's what this new phone's going to look like, and it comes from a supplier.
Hall: I can't wait. Toby, can you wait till we start seeing the competing iPhone/ iCar teardowns.
Bordelon: That's going to be ridiculous, that's going to be absolutely ridiculous. I don't know if it's going to be a good ridiculous or bad ridiculous, but you're going to see like all these tech websites are going to have to spend like $80,000 on this car so they can tear it down just to see what's in there.
Apple could probably generate a good $50 million, $100 million in revenue just from review sites buying a their car like every year, which actually, when you think about it that way could actually be a solid revenue stream for them.
Hall: Rachel, Toby just convinced me. I'm on Team Rachel now I'm now excited about this.
Warren: Thank you, Toby. [laughs]
Bordelon: We'd know about this. We'd so know about it there's no way, like people would leak the car.
Bordelon: If you're going to say, hey, what they're going to do, they're creating a prototype to test out new technologies they're going to license to other people, I'd buy that sure people do that all the time.
But I don't think we're going to get an actual constructed automobile, they're going to sell into the consumer market anytime soon, not this year, not next year, or the year after that. I just don't think that's where they go and I don't know why you they would Why would you take a cash generation machine and say, "Yes, we want a piece of this low-margin, highly capital-intensive business that everyone on the planet seems to be wanting to compete over now."
But hey, sure, maybe there's something there, I don't know.
Hall: I think the way I started to think about this. I think this is really what's happening, of course, six weeks from now they're going to announce an Apple car and I'll look like a complete idiot. But I really think what they're doing is.
Toby, what you're saying is you think about really where has Apple focused, where have they clearly delineated the goalposts, it's where there is growth and there is margins and there is massive addressable markets. Healthcare, health broadly, streaming, video entertainment broadly, music, those are things that they can leverage, they can flex that huge ecosystem.
What is it, a billion people in the world that have an iPhone now, to get more of their money that they're going to be spending on something and they are going to be increasingly spending it. All of those things are that. The only thing that's growing in the vehicle space broadly and have very high rate is potentially autonomy and electric vehicles.
What is Apple's competitive advantage that can generate secure margins, steady recurring cash flows or predictable upgrade cycle cash flows. I think they're doing two things, I think they're trying to figure that out, No. 1 and 1A is they're thinking about where in the automotive space can their ecosystem play, whether it's the entire car or something else.
I think that's the thing that they've got to figure out. Here's the thing, the bottom line is the iPhone basically killed the in-car navigation, who needs that if you have an iPhone? You have CarPlay or whatever it's called. It's got to be bigger than that, there's got to be some revenue-generator. It's fun to follow, the question, is this a big bet that Apple should be making? My answer is yes with a question mark, yes.
Because they're really smart people, very smart. This is a company that is massively profitable, and they need to be taking bets, they need to be taking risks, there's no doubt about that, and this is a company that can afford to take risks. The minute the company starts being overly conservative, is the minute that it's not worth owning, I think that's my take.