Actions of Apple (NASDAQ: AAPL) have risen this week, as investors are digesting some surprising news. Speculation that the tech company is entering the electric car market is surfacing. Apple is targeting the production of a new electric vehicle by 2024, “people familiar with the matter” told Reuters this week.
The news breathes new life into the company’s famous Titan Project – a top-secret Apple effort that focuses on the development of technology for electric vehicles.
Will Apple really develop an electric car this time around? Even more importantly, should a potential Apple car make investors more optimistic about the stock?
Image source: Getty Images.
What we (could) know
Confidentiality around product plans has always been a fundamental principle for Apple’s competitive strategy. This means that there is no tangible information on whether the tech giant is really developing an electric car. But the rumors are certainly back.
When news of Apple’s potential plans to enter the electric vehicle space first surfaced in 2014, there were rumors that the company was working on the design of its own vehicle. But as time went on, Apple reportedly abandoned the idea of building a car and focused on the vehicle’s software. Now, Reuters sources report that Apple is once again looking to build its own mass-market electric vehicle.
The main catalyst for Apple’s supposedly reinvigorated interest in designing an electric vehicle from scratch is a new “monocell” battery design developed in-house, according to Reuters sources. This project will “radically” reduce battery cost and improve battery life, a source “who saw Apple’s mass design” told Reuters.
This “next level” design is like “the first time you saw the iPhone,” said one of Reuters’ sources.
Speculative at best
So, what does all this mean for Apple investors? Nothing more.
Not only has Apple ruled out plans before, but the whole project is still shrouded in mystery and any tangible results from today’s efforts are still years away. In fact, even if Apple starts producing an electric vehicle in 2024, it could take years for the company to prove that it can generate profitability for cars in mass market volumes.
For Apple’s credit, it has the resources at its disposal to get the job done. The technology company is not only currently generating more than $ 70 billion of free cash flow annually, but ended its last quarter with $ 79 billion of net cash (total cash and marketable securities less debt). Still, any potential value creation by using Apple’s treasury to invest in a new arm of your business is offset by the risk of wasted capital if the new electric car venture is unsuccessful.
It is too early to bet on such a speculative product idea.