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Apple had 'little to gain' in entering EV market, analyst says

Apple (AAPL) reportedly will not go ahead with plans to build a car after spending billions of dollars and nearly a decade on it. But in the end some analysts say it’s likely a good thing for the tech juggernaut.

“A successful and profitable company such as Apple has little to gain from building their own vehicle,” said Sam Fiorani of AutoForecast Solutions, a research firm specializing in the automotive manufacturing sector. "The minefields currently being traversed by the likes of Rivian and Lucid should have informed executives at Apple just how difficult an endeavor this would have been.”

In recent months it seems Apple executives did come to this conclusion. According to Bloomberg, after pushing out deadlines and features set for the car recently, it became more obvious that building a car from the bottom up was going to be expensive. At the same time, the car would be entering a market already saturated with EV competition with the likes of Tesla, Rivian, and Lucid at the higher end — and one where demand was softening substantially. Even Big Three automakers like Ford and GM have warned about waning EV demand in their Q4 earnings statements.

Apple CarPlay
Apple next-gen CarPlay will extend beyond the central display, encompassing the instrument cluster and additional screens. (Apple) (Apple)

“Since Apple farms out much of its product manufacturing to other firms, it was unlikely that any vehicle they developed would have been assembled in-house, however marketing such a vehicle would have required something more than Geniuses at the mall Apple Store,” Fiorani said, highlighting the challenges Apple faced in the market.

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And unlike other EV makers, Apple wouldn't be able to capitalize on its data, since it already gets so much of it through its ubiquitous iPhones.

“New vehicle startups of the last two decades have focused their long-term energy on data, which is Apple’s core business today,” Fiorani said, referring to Rivian and Lucid. “The iPhone already gathers so much information on its owners that the cost to start a vehicle division couldn’t possibly pay off in enough additional data to offset the financial risk.”

Apple has before dabbled in product areas outside of its core and then dropped plans if they proved unlikely to be profitable. For years Apple was rumored to be making its own high-end flat screen TV for consumers. But as the market for LCD and LED TVs became less profitable, Apple withdrew those efforts and stuck to making external monitors.

The better play for Apple's foray into autos, as many analysts have noted, is sticking with software and helping legacy automakers create a better user experience for their customers. With Apple CarPlay software for vehicles, Apple could add value by focusing on Apple’s core competencies like design and user interaction and enjoy higher and more stable profit margins.

“Today’s software-driven vehicles need engineers, like those at Apple, to create a system to gather, process, harness, and utilize data from drivers, passengers, and the vehicles themselves,” Fiorani added. “This is a bigger potential windfall than the actual development of a vehicle.”

Wall Street reaction from analysts at firms including Morgan Stanley, CFRA, and Wedbush Securities has been universally positive on Apple's cancellation of its car project, though they acknowledged that the costs incurred are not ideal. Nevertheless Apple’s pivot from a car to other endeavors like generative AI are welcome.

“As Apple Car bears, we believe this report, if true, represents a positive step forward in 1) focusing on what matters, and 2) exhibiting cost discipline,” Morgan Stanley analyst Adam Jonas wrote in a note to investors on Wednesday morning. “We believe the engineering talent, CAPEX investments, and time spent on Project Titan are better repurposed into related technologies, such as Generative AI, which has a much higher probability of coming to market and strengthening Apple's competitive moat… Any new talent that can help further Apple's AI progress is a net positive, in our view.”

Pras Subramanian is a reporter for Yahoo Finance. You can follow him on Twitter and on Instagram.

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