Apple Inc.’s Driverless Car Ambitions Hinge on Software Development

Apple's (AAPL) self-driving project is not about money. It won't even make money but it will position the company in building a business outside of smartphones.

Apple Inc.’s (AAPL) Driverless Car Ambitions Hinge on Software Development

Source: Apple

As much as analysts and media want to argue over the quarterly iPhone and Watch sales from Apple Inc. (NASDAQ:AAPL), the smartphone giant is more than just that. In addition to its monstrously large service revenue from music, the company is diversifying its business outside of its core competency.

Its latest reveal — the driverless car — is a positive development for shareholders. Technology is shifting away from PCs, laptops and even smartphones to a lesser degree. And tech firms are positioning their business to grow in the driverless car market.

According to a Bloomberg report, Apple is partnering up with Volkswagen to turn its existing fleet of T6 Transporter vans into self-driving shuttles. What better way to immerse its staff in its own self-driving technology than to offer such shuttles for them?

Apple needs to get its feet wet in this space. Intel Corporation (NASDAQ:INTC) signed a deal through its Mobileye unit to supply self-driving solutions, such as highway driving and emergency breaking, to 8 million vehicles. Ambarella, Inc. (NASDAQ:AMBA) is developing CV1 and CV2 (computer vision) technology for the automotive industry. And NVIDIA Corporation (NASDAQ:NVDA) is selling the NVIDIA DRIVE platform, which includes an AI back-end and delivers 320 trillion deep learning operations per second (TOPS).

Apple Self-Driving Vehicle About Software, Not Hardware

Apple’s project in self-driving cars shifted its focus from hardware to software. This shift is not a setback. Instead, it lowers the company’s project risks by removing the commitment to invest in physical assets that could become obsolete very quickly. By developing the software, Apple will have the chance to deeply integrate ADAS software with its iOS.

Apple is still in the early phases of the project. Only last year, in 2017, did Apple get a permit from California’s DMV to test self-driving vehicles on public roads. As of May 2018, Apple had 55 vehicles on the road using its software.

Competition in Self-Driving

Tesla, Inc. (NASDAQ:TSLA) is the obvious leader in the self-driving car space. Its premium P90D and P100 models offer the technology to those who can afford to buy a Tesla. But investors may wonder if getting VW to supply the vehicles, instead of BMW or Mercedes-Benz is a setback. With VW owning premium brands like Audi, Porsche, Bentley or Bugatti, there is little doubt that Apple made the right move. Still, VW Group may limit the project to VW vehicles only without involving its premium brands. Besides, Apple’s main competitor is Tesla, and it is very far behind. Tesla may have the branding and technology advantages for now but until its Tesla 3 initiative brings its electric vehicles in the mainstream, Apple Inc. has a chance to catch up.


What Self-Driving Cars Mean to Apple

Investors may safely assume that the self-driving vehicle project will not add any bullish sentiment to AAPL share price. And even though it is a cost, the project is a necessary one that diversifies the company away from smartphones, tablets, and computers alone. Already, the premium smartphone market is slowing down, at least for Android devices. Applied Materials, Inc. (NASDAQ:AMAT) mentioned the slowdown in this space during its quarterly earnings call. Himax Technologies, Inc. (NASDAQ:HIMX) said the same thing. Based on Apple’s quarterly earnings, iPhone sales, especially the high-end iPhone X, did well. Yet, investors should still consider the possibility of demand slowing for Apple’s top-end devices.

Bottom Line on AAPL Stock

Apple’s self-driving vehicle project is a positive development even though the financials of it are of no importance at this time. Even though the 12 models built on suggest a fair value that is around 4 percent below the recent $188 price, Wall Street analysts have a $195 price target on AAPL stock.

As of this writing, Chris Lau owned shares of HIMX and planned on initiating a long position in AMAT shares in the next 72 hours.


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