Apple targets car production, eyes batteries: Reuters

Yahoo Finance’s Kristin Myers and Robert Muller, RBC Capital Markets Enterprise Hardware Analyst, discuss Apple getting into the electric vehicle space.

Video transcript

KRISTIN MYERS: And I want to look at Apple since we'll be chatting them next, up over 3.5% right now. This is on the news that Apple is looking to move forward with self-driving cars and is aiming to do so by 2024. So I want to bring on Robert Mueller, RBC Capital Enterprise Hardware Analyst, for this discussion.

So Robert, this is underneath the umbrella project, Project Titan, as it's been called. And it has been running for years now, somewhat recently laying off about 200 employees just last year from this project. Now, when I heard this news, you know, I thought that we've seen a lot of companies really trying to get into the autonomous vehicle space. And it has been full of a lot of setbacks, I'll call them.

How well pleased do you think Apple is not just to succeed in this space, but to succeed by 2024, even as we've had all these setbacks with the pandemic to contend with?

ROBERT MULLER: You know, when you think about Apple top to bottom, they really have about as good a chance as anyone if you think about, you know, great brand, very loyal following. They make products that make your life easier. They have a great balance sheet, great balance sheet capacity. They can take on debt, they have plenty of cash on hand.

And then also, they have plenty of engineering talent, very smart people that work there that can write code, that can manufacture products. So if I had to handicap them, I don't really see too much of a reason why they couldn't partner with a manufacturer or get this up and running compared to anyone else.

2024 might be a little bit tough for just full autonomy, just if you think about regulatory pressures, getting the technology ready just over the next three years. That might be a little bit difficult. But you could get the software up and running, you could prove it in certain use cases and really build the momentum behind your car. So that's absolutely a possibility. I think, again, they've got as good a shot as anyone.

KRISTIN MYERS: Now, you picked up on a couple of things that I definitely want to dive in a little bit more about. Because when I think of Apple, I don't really think so much of the technical challenges that they might be facing going forward but really some more of the logistical ones. They're just not-- they're not an automaker. They don't make cars, they don't have to-- they've never had to manufacture cars. Cars are not cell phones.

So what do you see as some of the biggest hurdles going forward? And do you have any idea of maybe who they could partner with, or who would be the best partner for Apple going forward to manufacture the vehicles themselves?

ROBERT MULLER: So they do have some manufacturing expertise when you think of how they partner with some of their suppliers. They make plenty of iPhones every year, hundreds of millions. So, you know, they have the capacity, they're used to manufacturing. And so this is just another area that they would shift to.

You know, they could partner with a premium brand. I'm not trying to make a call that necessarily BMW, for instance, but, you know, someone with sort of that prestigious brand, that luxury offering they could partner with or just another OEM that's looking to boost their self-driving, their autonomous capabilities.

But really, you know, a lot of their manufacturing partners, some of which we cover, whether or not it's Jabil or Flex, you know, these companies, they produce pieces that are used for consumer electronics, but they're also moving more into automotive as well. So they do have manufacturing partners with automotive expertise, not necessarily building the full car sort of, you know, tires to roof. But they do have the manufacturing capability and practice and ability to ramp.

KRISTIN MYERS: Do you think that this is something that they might look to own entirely instead of having, you know, outsourcing that manufacturing? I think there's obviously a lot of upside if you are an Apple investor, if they do really start to own that entire value chain.

ROBERT MULLER: Whether or not they actually own the machinery that puts the cars together and gets them off the production assembly line, maybe, maybe not, I don't know if there's a material difference between whether or not it's branded kind of in a partnership with another company or if they're actually putting the finishing touches. Like, even the iPhone, you know, they outsource the production, the final assembly there. So I would imagine they do something similar.

They are successful even on the software standpoint. If you can show that the technology works, show us some use cases, I think that that would be beneficial, and software itself would just be an inherently higher margin product than what you would get out of just the metal within the automobile. But then again, if you are taking more control over the design, the manufacture, and the final production, Apple is very strong in terms of having their products look nice. They're sleek, they're usable. And so they would just have more control over the final product.

KRISTIN MYERS: I'm wondering if you could talk to us about the battery. Lidar technology, I believe it's pronounced "li-dar," is not even something that I had heard too much about. I'm not the expert in this. I know that this is something that you know far more about, as well those sensors. Talk just a little bit about that tech, how important it's going to be for the success of this vehicle.

ROBERT MULLER: Yeah, you know, and we think of lidar really just being radar with lasers is the easy way that I think about it. So there's the technology in terms of if you need to-- you don't have to necessarily see it with eyes, but you need to see it whether or not with the laser capabilities, like you said. So being able to see an object in front of you, measure distance, measure closing speed.

So that will be an important technology. They have tested it with their new iPhone model, the 12 Pro, you can use lidar to scan the room and try and get sort of like a on-the-run sample of all the objects in there. So it is a technology that will be used in terms of just even safety or just any of the logistics of getting the self-driving capability up and running.

From the battery perspective, one of the big complaints is range anxiety, if your car can't go very far. So any improvement to the batteries, the sources in the [? Oracle ?] claim are a radical improvement to battery technology. So if you can increase the range, that would help get people sort of over some of the hesitation of having an electric vehicle where you're not able to just pull into a pump and fill up when you're running low on gas.

KRISTIN MYERS: Now, in your note, you were talking about long-term upside here. I'm wondering about the path to profitability for this venture particularly. How long of a runway do you think Apple is looking at?

ROBERT MULLER: Apple's fortunate in a sense that they can take a very long-term view of their product. You know, they have a cash cow with all their consumer devices right now. So they're going to be generating money in the meantime regardless of what happens with their automobile tech. And one of the reasons that we have been positive on Apple for a while is that we really do look at the business.

It's kind of a call option on all future innovation. If you think about a company that created the iPhone, they created the iPad category, the tablet category, smartwatches, some wearables that I'm wearing right now, they've kind of mastered and dominated these categories. And so to me, it's unreasonable to think that they're not going to have a new product in the next two, three, four, five years.

And so it's really all upside potential if you're owning the shares on future innovation. And then a product like the car, if you think about just a massive total addressable market for them, it's huge. It's bigger than any of the categories that they currently have if they can master it. So really, this is just a call option on the future upside. And I think you're seeing that reflected in the stock price today.

KRISTIN MYERS: All right, well, we are going to leave that there. Robert Muller, RBC Capital Enterprise Hardware Analyst, thank you so much for breaking all of that down. It's something very cool to me but still a little bit "The Jetsons" on some of the aspects of this. Appreciate you for breaking all of that down. Thanks for joining us today.

ROBERT MULLER: Absolutely. Thanks for having me.