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Summary

Apple has made headlines as interest in its Autonomous technology has resurfaced.

Project Titan has been in the works for years, but has now taken a new direction.

I believe Apple has what it takes to be a dominant player in the EV/AV sector.

Thesis Summary

Apple Inc. (AAPL) made headlines last week when news of a potential Apple car divided analysts. Loup Ventures analyst Gene Munster compared Apple's capabilities in AI to those of Tesla Inc. (TSLA). Meanwhile, Morgan Stanley (MS) analysts suggested that this was the “ultimate bear case”.

I believe that Apple is well-positioned in terms of brand and technology to earn a spot in the highly coveted Autonomous Vehicle market. (Much like I pointed out in this previous piece)

In this article, I look at what this could look like and just how much Apple stands to gain.

Even if Apple doesn’t succeed, investors are left with shares of a highly valuable company, which is why I think Apple is a good way of “speculating” on the future of EV/AVs

The Apple car is nothing new; or is it?

Although Project Titan has been operating in the background for around 7 years, we have seen renewed interest in it in the last few weeks following what seems to be a significant change in direction.

Kevin Lynch is now leading Project Titan, and the focus has shifted from developing an EV, to some form of AV which, rather than being sold to individuals, could operate as a robo-taxi. Lynch was behind the success of the Apple Watch but has no experience in the auto industry, which is why Apple has recruited former Tesla execs and other industry experts.

Apple hopes to achieve fully autonomous driving by 2025 and has even designed its chip, which will be retrofitted into a test fleet in California beginning real-world testing next year.

Apple has certainly laid out an ambitious path given where other players are at the moment when it comes to autonomous driving. Tesla has been working on this since 2014, and Alphabet Inc.’s (GOOGL) Waymo was spun off over 10 years ago. The challenges with producing autonomous vehicles are as much technical as they are legal and political. Having said this, I believe that Apple has the right mix of ingredients to thrive in the space.

Why Apple could lead the AV Space

The fundamental question that investors have to address here is; What is Apple building? As automobile technology advances, especially with the rise of EVs, the line between car and computer has become less clear. The EVs of today are, for good and bad, heavily reliant on software. From opening your car to connecting to the internet, this is now all done electronically. The emphasis has moved from engines to chips, something which has been noted by many, including NVIDIA Corporation’s (NVDA) CEO. This change has been noted by many analysts and people involved in the segment. Huang predicted that by 2025, most cars might be sold at cost and that the sale of software will become the main source of revenue for car companies. He also noted that luxury and convenience is what is accelerating the move to EVs, rather than environmental concerns.

If software, and the hardware it comes in, will indeed be the most important factor moving forward, then doesn’t Apple have great odds of dominating this market? Apple has built one of the most used software’s in the world, the iOS. The company also builds some of the most sophisticated and sought after hardware. And, most importantly, the company has spent decades cultivating an image and brand which is associated with luxury and convenience.

The transportation experience of the future will be radically different from what it is today. As humans become less and less involved in the driving process, their time and focus will be freed up inside the car, and will likely be redirected to the surrounding screens or “infotainment systems”. It is no accident that Apple is flirting with a design that has an Ipad in place of a steering wheel.

Much like smartphones, the car of tomorrow, whether it's a personal car or part of a commercial fleet, will be programmed to act as an extension of us. They will allow us to seamlessly connect to the internet., use our other devices and ultimately allow us to keep consuming while we are taken where we need to go. While I don’t think this is necessarily a step forward for humans, it is a step in the right direction for Apple.

How much does Apple stand to gain?

It’s hard to predict the future of autonomous driving. While we are certainly getting close to it in terms of technology, I fear that the regulatory landscape is not moving at the same pace. Autonomous driving has serious legal and even moral implications which we must address. Having said that, we can all agree that this is the way forward. IDTechEx has tried to estimate what this future will look like.

According to our forecasts, by 2040 global autonomous cars (SAE Level 3+) and robotaxi services will become a $2.5 trillion market. By 2030, the autonomous driving system (including lidars, radars, cameras, computers, software and maps) market will reach $57 billion; the market value will more than triple by 2040, reaching $173 billion.

Source: IDTEchEX

Although it is almost 20 years away, robotaxi services, which seems to be what Apple is focusing on right now, will be a $2.5 trillion business. Apple has what it takes to dominate this space because it already has a good percentage of the world using its products. It would make sense for Apple clients to use these services since the car itself would be geared towards supporting Apple’s products. We have to think of this industry as part of a larger ecosystem.

Even sooner than that though, Apple could gain billions in revenue just by supplying software or hardware towards autonomous driving in one way or another:

Apple car - Global automatic car market share

Source: IDTEchEX

AD systems are forecast to be a $57 billion industry by 2030, and grow to $173 by 2040. Within this, software will be the most significant component. With Apple designing its chips for its cars, it could be paving the way to supplying not just its fleet of cars, but even selling chips to other manufacturers.

Takeaway

In conclusion, there is a big TAM out there, I don't think Apple will be content selling phones for the next 20 years. Apple has a great opportunity to develop a successful autonomous car, thanks to its expertise in software and hardware. Furthermore, the company is poised for commercial success, since its brand values luxury and convenience, aligned with what consumers are looking for in cars today.

This article was written by The Value Trend