‘They have hired people we’ve fired.’
That was Elon Musk taking a jibe at Apple a decade back soon after its plans to enter the electric vehicle and autonomous driving space took shape. He went even further to call Apple a ‘Tesla Graveyard’, saying ‘if employees don’t make it at Tesla, you go to work at Apple’. These were his responses when queried on whether he was worried about competition to Tesla from Apple in an interview in 2015.
Typical to any Apple project, there was lot of secrecy around ‘Project Titan’ too —Apple’s secret project in the automotive space. Rumours first started circulating on it in 2014-15, soon after it was clear that they were considering it seriously.
While an Apple TV was expected to be the next thing for the company after the iPad, for unknown reasons, it did not take shape. Post that, EVs and autonomous cars appeared to be a space that analysts believed Apple could make an impact in.
In fact, when Tesla cars were winning rave reviews in 2013/2014, a Wall Street analyst even noted how if Apple were to make a car, this would be it (referring to Tesla). So it was no surprise Apple invested a lot to test prospects in the space.
A dead end
What is surprising though is the news of Apple winding up the project after a decade of investment and extensive research.
According to a Bloomberg report, Apple will be shifting most of the 2,000 employees who worked on the project to generative AI projects. This is unusual for Apple which really hasn’t persisted so long in something and then given up. Yes, they may have been late to that space, with Tesla and other legacy OEMs dominating the EV space. But being late has never been a hindrance.
They were late to enter the smartphone space in 2007, but when they entered they turned out to be the best, pushing entrenched players like Nokia, Research in Motion (Blackberry) and Motorola to the wayside. Maybe this where one realises the difference a singe person can make.
Although the corporate philosophy in general likes to push the case that ‘no person is indispensable’, the absence of Steve Jobs and Apple’s dead end in its EV/autonomous vehicle project, makes one wonder on the importance of a single person sometimes.
This news has some lessons for investors as well.
In an upgrade on price target on the stock to $200 from $164 in December 2021, Morgan Stanley justified it on the basis that markets were not giving credit for value addition to the company in future from new products like self driving car. This price increase represented an estimated increase in fair value of the Apple (as per Morgan Stanley estimates) by around $500 billion. And good part of it was their expectations then, on a project that is getting shuttered now.
The lesson from this for analysts and investors alike is—don’t count your chickens before they hatch.
While the stock may not react immediately, this new development will throw into question what are the growth avenues for Apple. Revenues and earnings growth have stalled after FY22 and is not expected to pick up in FY24 as well.
The stock is trading at a trailing PE 28.5 times which is not cheap when growth is absent.
In early 2019 which too was a time when growth had stalled, the stock used to trade at a PE of around 15 times. Apple stock will be under pressure sooner or later unless it shows growth in business and comes up with a clear growth path built on AI