iPhone maker Apple (NASDAQ: AAPL) sent shockwaves through the market when it was reported that it will cancel its highly anticipated foray into the EV industry, after a decade-long Odyssey that saw over $10 billion poured into the project. AAPL stock rose 1% at the news.
This news came as a shock because the Apple EV was no ordinary venture for Apple; it was the company’s most ambitious project and one that held the potential to revolutionize the auto industry and rake in billions. Yet, Apple has chosen to discard this golden opportunity, in pursuit of something else.
The End of Project Titan
Jeff Williams, Apple’s COO, and Kevin Lynch, the company’s vice president of technology, and also the person in charge of the EV project, announced the news of the cancellation to the team of around 2,000 people working on Project Titan, or as we know it, the Apple EV.
According to Bloomberg, there will be layoffs of some hardware people, while others will get the opportunity to apply to other teams in Apple. Additionally, some people who worked on the EV project are now being moved to Apple’s AI and machine learning division to work on generative AI products, which will be a key future component of the company. There will also be people moving to the Vision Pro division, emphasizing Apple’s special focus on spatial computing.
Apple’s decision to abandon its EV plans is quite literally a bombshell development, and an extremely rare retreat for the company, because this isn’t simply an idea on the back of a napkin, but a project that Apple has been working on for a decade, and spent more than $10 billion on. Despite investing this much time and money, problems were apparent in the project from day one.
In fact, Apple’s EV project had many restarts and direction changes over the years, and most recently in January, Apple pushed the launch date of its EV to 2028 rather than 2026, and downgraded the car from a fully autonomous Level 4 or 5 vehicle, to a Level 2+. Since then, there have been more discussions between the company’s executives, before they finally decided to pull the plug on the project in early February, marking a catastrophic end to one of the company’s most ambitious attempts at a new product category.
Is This the End of Apple’s EV Ambitions?
There are talks on the table for Apple to acquire an existing EV company, but this will likely take a very long time to become a reality. If you follow the auto industry, then you probably already know that it’s one of the hardest markets to enter, thanks to how hard it is to compete against the U.S. market leader, Tesla (NASDAQ: TSLA).
The company’s CEO, Elon Musk, even went on X to take a dig at Apple, indirectly saying that not every big tech name can do what Tesla can do.
This sentiment is felt in the EV industry as a whole, with companies like Rivian (NASDAQ: RIVN) and Lucid (NASDAQ: LCID), who started off with a lot of promise, now struggling to compete with Tesla. Tesla itself also saw its fair share of ups and downs, and the company forecasts “notably lower” sales in 2024, thanks to a slowdown in the EV market. Right now, the EV industry is a very tough industry to crack for Apple, and one with very thin profit margins. Maybe that’s why the company decided to abandon its EV plans.
Shifting Focus to GenAI
Some might even argue that this is a strategic decision and good move on Apple’s part, because the decision came as the market for AI in consumer electronics is growing sharply, with preliminary data from the research firm Counterpoint suggesting that shipments of generative AI smartphones will exceed 100 million units in 2024, and more than 500 million by 2027. Additionally, demand for EVs has slowed in recent months as borrowing costs remain high, which has made the market increasingly competitive as major players try to win over customers.
Therefore, this decision might be good for Apple as it will allow the company to focus its resources towards more promising areas in the short-term like spatial computing and generative AI, and maybe this will be Apple’s opportunity to get back at Microsoft (NASDAQ: MSFT), which recently stole Apple’s spot as the most valuable company in the U.S., especially when you consider the fact that Microsoft is heavily investing in generative AI, and very recently announced a strategic partnership with OpenAI’s French rival, Mistral AI.
The Risks
There’s still some risk to abandoning the project. Just imagine Apple’s big tech competitors like Alphabet (NASDAQ: GOOG) or Amazon (NASDAQ: AMZN) coming out with a Google EV or an Amazon EV. There’s also the fact that Apple’s Chinese competitors, like Xiaomi (OTCMKTS: XIACF) and Huawei Technologies, are already coming out with their own EVs, and planning to disrupt the auto industry just like they disrupted the smartphone industry a few years ago.
This is especially a point of weakness for Apple, as the company has been losing steam in China. China used to account for 20% of Apple’s revenues, but Beijing recently ordered its government officials to stop using Apple’s devices for work, as well as stop bringing them into offices, as a response to the sanctions the U.S. imposes on China to restrict its access to the most advanced semiconductor technology.
But, all hope is not lost for Apple in the Chinese market, as the company took the top spot in China’s smartphone market for the first time ever in 2023, with a 17.3% market share, but Chinese competitors are catching up rapidly, with Honor, a spin-off from Huawei, holding the second spot with 16.8% market share, followed by Vivo, Huawei and then Oppo. Apple likely managed this by offering timely discounts on its newest iPhone 15 models in China, which stimulated demand. But, as we’ve seen with the EV price wars in China between Tesla and BYD, cutting prices isn’t exactly a sustainable growth strategy.
How Will AAPL Stock Grow in the Future?
Right now, Apple is prioritizing its VR/AR headset, the Vision Pro, as a driver for future growth, but it’s also working on implementing new AI technologies into its products, for example, it’s studying developing GenAI-powered airpods with cameras and augmented reality glasses.
There’s also one way AAPL stock can catch up with its Magnificent Seven peers in the AI race, according to the investment firm Bernstein, and it all comes down to how the company positions its next iPhone. Bernstein believes that Apple might position its next iPhone as an ‘AI’ phone, just like how Apple’s competitors Samsung (OTCMKTS: SSNLF) and Xiaomi did with their newest releases. Samsung recently released its Galaxy S24 lineup and integrated several AI-linked features, including the ability to edit photos, real-time translation and the ability to tag photos.
On the other hand, Xiaomi launched new 14 Series flagship phones that use AI to generate real-time transcription of conversations during video calls, and to allow users to locate specific images within their photo collections by describing what they are looking for. Most people would agree that these AI features are nice, but they’re nothing revolutionary.
Therefore, Bernstein believes that Apple needs to go a step further, and that the company is actually capable of doing that thanks to its impressive ability to integrate software and hardware. The investment firm said that it expected new AI capabilities that are also consistent with Apple’s existing products, like advanced image and video editing tools, an enhanced Siri and greater automation in the Apple Music service.
AAPL Stock Forecast
Many AAPL stock investors think that Apple has fallen behind the competition when it comes to generative AI, even as the company has boosted spending on the technology and reportedly built an internal version of ChatGPT. Also, in the company’s latest earnings call, CEO Tim Cook said that the company has some “incredibly exciting things” to share later this year in terms of generative AI. There have also been a couple of media reports recently that said that the next version of iOS will be filled with AI-related updates, and they all cited “people familiar with the matter” as the source.
But, if Apple does inject the next iOS with as many AI features as possible, it’s likely to do so at its next developer’s conference, which is scheduled for June. Bernstein also said that this is when Apple might unveil a new generative AI tool for iOS developers, which it has been working on for the last year in an effort to better compete with Microsoft’s GitHub Copilot.
It’s safe to say that Apple abandoned the EV opportunity to chase another opportunity that a lot of people say that it’s lacking, even if that really isn’t the case. What Apple is doing right now is possibly the company’s attempt to break out of a slow growth cycle, and it seems more focused on keeping investors, who were disappointed with Apple’s current performance, interested.
But, will Apple’s AI gamble drive the same immediate revenue, as well as a rally to the price of AAPL stock, as a $100,000 self-driving car? Only time will tell.
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