According to a recent report, an Apple car will be available by 2024, what does this mean for investors, and will there be rivalry between Apple and Tesla?
Apple car versus Tesla: is there an opportunity for investors?
According to Reuters the new Apple car will include self-driving technology and be available, or at least be announced, in 2024. And with that news, speculation grows on a potential clash between Apple and Tesla.
I reckon that the most important part of the Reuters revelation has been largely overlooked — and that is the phrase ‘self-driving.’ I believe that self-driving technology will mark as big a leap in the story of transport as the move from horse to car.
There would be little point in Apple entering the car market as it stands — the market is crowded and super-competitive. For the internal combustion engine, there is little scope for a new, high-tech player.
For electric vehicles, things are different. The market opportunity is wide-open. Furthermore, it seems expertise in battery technology is more important than expertise in car manufacturing.
But as the tale of Innovators Dilemma shows, when we see a significant shift — I hate the word, but let’s call it a paradigm shift — opportunity opens up for new players, danger lurks for incumbents.
And the shift to self-driving, or autonomous cars, will be one mother of a paradigm shift.
The Apple car project is known as Titan. Now Titans have had an unhappy history. Cronus, the head of the Titans was castrated by his son Zeus — according to some takes on Greek Mythology. Prometheus was subjected to the somewhat unpleasant punishment of having his liver eaten by an eagle every day.
I suspect that the Apple Titan project will enjoy a happier fate.
Tesla versus Apple
A few years ago, in an interview, Tesla boss Elon Musk acknowledged that Apple did indeed stand a good chance of becoming a successful competitor in the electric vehicle market. But he said: “The car industry is very big, it is not as though there will be one company to the exclusion of others.”
He is right about that. According to Statista, the global car market will grow to just under nine trillion dollars by 2030.
Assuming that translates into a market valuation of say five times revenue — that would make a potential market cap of $45 trillion.
Apple, by contrast, is worth a piddly $2.3 trillion. Tesla, a mere $629 billion. In other words, the car industry is most certainly big.
And yet, Tesla’s market cap currently exceeds the market cap of the next five largest car companies combined. Apple’s market cap is larger than the top 37 auto companies, including Tesla, combined. For all I know, Apple is bigger than the entire auto industry, by market cap, combined.
So we have this juxtaposition. An enormous industry — far bigger than the smartphone market — yet the market cap of smartphone makers dwarfs its market cap.
To me, this means opportunity for companies with the right product
Winner takes it all
In technology, we often see the formation of monopolies and semi monopolies — this is partly because the network effect of many data-oriented companies, such as Facebook, favours monopoly.
Will we see a similar trend in the auto industry if it becomes more tech-based?
Elon Musk said: “If someone makes a better car than us and we can’t sell any cars, and we go bankrupt, I still think that is a good thing for the world.”
In reality, I suspect that we won’t see a monopoly emerge, and if that looks likely, I hope that regulators will step in — not that they have done much to curb the power of techs so far — although they did clip Microsoft’s wings at the beginning of this century
I think the opportunity is enormous, but the spoils will belong to companies that can crack both battery technology and autonomous driving technology, applying AI.
The spoils of victory will be very valuable, the kind of valuable that includes phrases like multi-trillion dollars.
Implications of autonomous cars
But there is an implication of autonomous cars that is hard to overstate.
Electric vehicles have less moving parts than traditional cars. Therefore, theoretically, as battery technology advances, will have a longer life-time.
Electric vehicles are much cheaper to charge than petrol cars are to re-fuel fully.
Furthermore, autonomous cars won’t, in due course, and by definition, require a driver.
The combination of these factors — reasonably high upfront costs, but low running costs and no need for a driver, makes autonomous electric vehicles more suited to car sharing. Imagine how much cheaper it will be to order a taxi if you don’t have to pay the costs of a driver and running costs are much lower.
And it is the way in which autonomous cars will lead to car-sharing that will shake-up the global economy. At the moment cars spend 95 per cent of their time parked. Taking into account that there are occasions when more cars are used, let’s say that by car-sharing we can meet our transport needs with 80 per cent fewer vehicles than we have at present.
The auto-model of the future will be closer to the cloud model in IT.
The disruptive shock to the economy will be enormous.
As individuals, we will be better off — we will be able to fulfil our transport needs for much lower costs. But the economic implications of this sharp reduction in the number of cars manufactured will be far-reaching.
Companies that succeed in this new world will be masters of AI and provide the technology for car sharing. This is why for all their massive valuations, uber and Lyft are interesting. But I suspect that Tesla and Apple are far more likely to benefit from this shift than traditional carmakers.
These views are those of the author alone and do not necessarily reflect the view of The Share Centre, its officers and employees.