Wednesday Motor Trend spent the majority of the day teasing an article that focused on the mythical Apple Car. The fact that such effort was put into hyping what amounted to the conjecture of an art student focus group is a topic that is being handled by more than a few writers already. What I want to discuss, though, is the impact that whatever vehicle or transportation service that Apple may someday release will have on Tesla and the electric vehicle market in general.
Pitting a Potential Apple Car vs Tesla is Lazy
For some reason, Tesla is routinely brought into the conversation whenever an Apple car or Project Titan is mentioned (Project Titan is believed to be Apple’s internal name for their car project). Motor Trend positioned an artist’s rendering of an Apple Car next to the recently unveiled Tesla Model 3 in a tweet that read “Is the #MTAppleCar better than the #Model3? Details here” (there were no details). The Tesla forums that I follow were overwrought with discussion about how Motor Trend’s article might influence Tesla’s stock price the following day, perhaps positively with an ugly design or negatively with an attractive design.
While I acknowledge that traders are just being savvy by attempting to predict the market’s reaction to any Apple-related car news in attempts to capitalize on a temporary overreaction, for longer term investors – and simply fans following the company – I think it is importance to step back and recognize that whatever Apple may release will have a negligible-to-very positive effect on Tesla. In this sense, unless you are hoping to time the pop of a positive-to-Tesla Apple release, worrying about Apple’s Project Titan is an exercise in futility.
To be clear, I – like everyone else – have no inside knowledge of Apple’s plans. They are notoriously tight-lipped about products until Apple themselves announce them; the precise reason why Motor Trend’s tease was always just click bait. CEO Tim Cook recently tried to ease the short-term expectations of Project Titan by telling the audience at Apple’s recent Shareholder Meeting that it would be “Christmas Eve for a while”. If the result of Project Titan ends up making it to market, it won’t be for a few years. This means there is no real short- to medium-term impact on any other company, Tesla or otherwise.
What is indisputable, however, is that should Apple release a new transportation product or service, there will be a market for it based on Apple’s very large and rather loyal existing fan base. Take, for example, the uptake of Apple’s latest product, the Apple Watch, which a year after release has been called anything from a flop to a marginal success. The fact that selling 12-15 million units of a new product category at an average price of around $500 could be considered anything other than a hit tells you all you need to know about Apple’s ability to impact – or create – a new market.
A Larger Pie Benefits Everyone
Exactly what Apple releases is much less important to Tesla followers than a telling characteristic of the market which they’ll be releasing it into. If Project Titan results in any type of vehicle that will be available for the public to purchase, the most important news will be whether that vehicle runs on an electric battery pack or on gasoline. If it is in fact an electric vehicle (EV), the market for electric vehicles made by any manufacturer will immediately explode. The biggest losers in this scenario would be the big automakers who to this point have ignored electric vehicles or only made compliance EVs that are designed with funky enough exteriors to move anyone on the fence back to a gasoline vehicle (referred to as internal combustion engine, or ICE vehicles).
From a stock price perspective, Tesla would likely take a temporary hit on the news of an Apple EV, when in reality it would make millions of people who never considered going electric for their next vehicle to immediately shift their thinking. The sales of ICE vehicles would freeze as people delayed their purchasing decision until Apple’s product was available to see in person or test drive, and if the only sales other EV makers made were to those who decided against purchasing Apple’s EV they would still see a huge sales increase. A comparison might be to rewind to the release of the original iPhone in 2007. Being the “other guy” in the Smartphone market in the years that followed worked out rather well for Samsung as measured by revenue. Those hit hardest included Nokia and Motorola, the leading flip phone manufacturers at the time who were caught off guard when the rules suddenly changed. That’s GM, VW, and Ford right now. Not Tesla. Perhaps not even Nissan, who has done a respectable job with the Leaf to this point.
Car Sharing Service Net Positive for EV Market, Even as Overall Auto Sales Decline
Should Apple come to market with a car sharing service rather than a production vehicle available for consumer purchase, as some have speculated, the effect would still be largely positive for Tesla if those vehicles were electric. Total vehicle sales of all types would likely start (or continue) to decline as a portion of previous car owners decided a car sharing model would work well enough to remove them from the car buying market. However, high end vehicle manufacturers would likely still persevere as premium customers who prefer vehicle ownership would buoy sales at the high end, where Tesla’s Model S and Model X reside. Those particular vehicles have gross margins in the low to mid 20% range with Tesla executive compensation goals tied to 4 consecutive quarters of 30% margins, so that would still represent a profitable scenario for Tesla vehicles to go along with the burgeoning Tesla Energy product line. If Tesla Model 3 sales felt the brunt of weakened demand, volume projections would decline but CapEx would also be reined in accordingly.
The most neutral-to-negative case might be if Apple unveiled a ride sharing model that utilized ICE vehicles. In this scenario, overall demand for all manufacturers would likely decrease but EVs as a segment would not benefit from the backing of a behemoth like Apple adopting the technology. Given Apple’s focus on renewable energy, however, it would be very surprising if they decided to come out with any transportation product or service that was dependent upon fossil fuels, especially considering the 2019-2020 launch expectations.
Regardless of what companies you follow or invest in, the future of sustainable transportation looks bright from where we stand today. Rather than pitting manufacturers against one another, the best bet may be to simply sit back and enjoy the progress that the transportation industry is set to experience in the years to come. Should Apple decide to involve themselves in this coming “auto revolution” as some are calling it, chances are the result will be a significant leap forward for stakeholders in the EV market as a whole.