iCar: Apple’s not a first mover. It’s a second shaker

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The iCar rumors are heating up again. In December, Reuters reported that Tim Cook is building a ridiculously techy personal automobile and now we finally know who the manufacturer might be. Spoiler alert: it's not Tesla or any of the other fancy car manufacturers).

Similar to the rest of Apple's products, the "Apple Car" will be designed in Cupertino but Apple isn't building/assembling it itself. That honor will reportedly go to Hyundai-Kia. Tentative ETA for production: 2024. Of course, secretive Apple didn't confirm.

Why does Apple wants to make cars?

Apple's first car attempt, "Project Titan" (bold name), began in 2014 and crashed in 2019. So why is Apple trying again? In short, the TAM is huge.

TAM is Total addressable market. It is the the total amount of money companies could make selling a specific product/service. Morgan Stanley put out a research note stating that while the annual TAM for smartphones is $500B, the TAM for global mobility is $10T. So, Apple would need only a 2% share of that market to match the size of its iPhone business (Apple made $66B in iPhone sales just last quarter).

So why would it work this time? 

Well, Project Titan failed because Apple tried to do everything by itself. Since then, Apple has sought out partnerships with companies that have actually made, you know, cars. And now Apple is reportedly close to sealing a deal with Hyundai-Kia to be its manufacturing partner to make an Apple-branded, fully self-driving electric car. Hyundai-Kia has the auto supply chain and engineering expertise Apple lacks and  which is indispensable to make cars. Car-making measures time in years. It's usually five to 10 years between starting a car design and getting it mass produced for the road. Never forget: It took Tesla 17 years to find its first profit. Hyundai-Kia will make it easier and faster for Apple to churn out cars.

Will Apple be successful?

Apple's working on a fully autonomous EV but a few other companies will probably get there first (Google's Waymo, GM's Cruise, and Tesla's Tesla are well on their way). But Apple cares more about being the best than being the first. BlackBerry came before iPhone, but iPhone won. Fitbit came before Apple Watch, but Apple Watch won.  And Tesla came before the AppleCar, so you know where this is going. Apple is not a first mover, it’s a second shaker. Tesla beware.  

The Takeaway

It does make sense that Apple would make cars. Apple investors are used to eye-popping growth—to keep its stock price on a roll, Apple needs to pursue new markets with huge TAMs. Also, while auto manufacturing takes a lot of cash, that shouldn't be an issue for Apple- the richest company in the world, with more cash on hand than many countries (over $200B at last count). Hyundai-Kia will be for the Apple Car what Foxconn is the iPhone and will make Apple's foray into the automative business a hell a lot easier. 

While I don't have a final verdict on the Apple Car, I know it will be a challenge to Tesla. In fact, I think it will be the most credible bear case for Tesla's stock. Although I'm sure Tesla will be ready for a fight.

Disclaimer: This post is merely my own assessment and is not an investment recommendation. For professional advice, seek input from a licensed investment advisor.

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