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Apple To Abandon Its Auto Ambitions, Shifting Focus To AI

AInvestWednesday, Feb 28, 2024 4:23 am ET
2min read

On Tuesday, Apple internally announced the news that it plans to abort its electric car production program. The company's COO Jeff Williams and Vice President Kevin Lynch, who was overseeing the project, made the decision and shocked those nearly 2,000 employees involved.

Sources said that, according to Jeff Williams and Kevin Lynch, the car project will gradually come to an end and a majority of the Special Projects Group (or SPG) staff will be transferred to the AI department led by John Giannandrea.

However, some employees closely associated with the project, such as hardware engineers and car designers, will face the choice of being transferred to other departments internally or being laid off.

Interestingly, Apple's stock price was boosted after the news was announced, closing up by about 1% on Tuesday at $182.63, which elevated the price from its lowest close since November 6th last year.

Despite intriguing reactions from investors, Apple in fact has invested vigorously in the automotive sector, as the company committed billions of dollars and extensive resources to this program for ten years. Moreover, Apple even hired over 300 Tesla employees in recent years to hasten the development speed.

It's no wonder that Tesla CEO Elon Musk had immediate comments when the news broke-Musk promptly reposted the related news and commented with salute and smoking emojis.

Initially, Apple intended to boost the company's growth by stepping into a new industry through the car project. But after ten years, not even a single wheel of the so-called L5 level autonomous luxury vehicle has been seen, leaving the company's executives and public relations department troubled with constant reports of research and development issues and repeated postponements of product launches.

Frankly, the project encountered difficulties almost from the start. Neither the vehicle's exterior design nor the technical function research and development could yield a viable solution. The constant change in leadership and development strategy has entangled the project further.

Now, after years of dithering, Apple has even missed the explosive growth phase of the electric vehicle market and entered the cooling period: High prices and inadequate charging infrastructure have curbed mainstream buyers' conversion to all-electric vehicles, causing a slowdown in sales. Hence, the entire industry's automobile manufacturers are reducing the prices, production targets, and profit predictions of battery electric vehicles. Companies like General Motors and Ford are even pivoting to produce more hybrid cars.

Even Tesla, the revolutionary pioneer in the American electric car industry, has warned that its expansion speed will significantly slow down this year. According to UBS predictions, Tesla's US domestic electric vehicle sales growth rate will decrease from the anticipated 47% in 2023 to 11% this year.

While others have shifted from grabbing the incremental market to rolling up the existing market, Apple, who had been thinking about making cars, couldn't even produce a concept car at the project's end, has undoubtedly added a touch of humor to the fiercely competitive electric vehicle industry.

However, for the well-funded Apple, experimentation in other fields is nothing new. Over the past five years, the company has invested a total of $113 billion in research and development, with an average annual growth rate of about 16%. While there have been many failed cases, there are also potential successful projects like the recently released Vision Pro.

Analysts Anurag Rana and Andrew Girard believe that focusing on AI could be a better choice for Apple. Apple's decision to abandon electric cars and shift resources toward generative AI is a good strategic move, we believe, given the long-term profitability potential of AI revenue streams versus cars., they said.


$AAPL(AAPL)


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