Apple Inc. (AAPL) reportedly is developing an electric vehicle (EV) with an advanced battery that will deliver a significant boost in range at much lower cost than current battery technology allows while also offering self-driving capabilities. Apple's so-called Project Titan is said to be targeting the start of production for 2024, though pandemic-related delays may push production into 2025 or beyond. If Apple succeeds, this represents a challenge to Tesla, Inc. (TSLA) in the market for advanced electric vehicles.

  • Apple reportedly is developing an electric vehicle.
  • The key feature is an advanced battery with longer range at lower cost.
  • Another feature is self-driving capabilities.
  • The vehicle is targeted to enter production in 2024.
  • This may present a challenge to Tesla.

Key Features of Apple's Planned Electric Vehicle

Project Titan has been cloaked in secrecy since its launch in 2014, and its strategic significance apparently was on the wane in 2019, when 190 members of the team reportedly were laid off. In 2018, Doug Field, a veteran Apple employee who left to work for Tesla, returned to oversee Titan.

According to sources familiar with the project who have asked not to be named, Apple's electric vehicle is supposed to be a mass-market product aimed at the general consumer for use as an everyday car. By contrast, Alphabet, Inc. (GOOG, GOOGL) has focused on developing driverless taxis through its Waymo division.

The critical feature of Apple's electric vehicle is supposed to be a significant advance in battery design that simultaneously offers "radically" reduced cost and increased range. Additionally, LiDAR sensors, such as those that appear in the iPhone 12 Pro and the iPad Pro models released in 2020, probably will be key components of the self-driving systems, giving three-dimensional views of the road and other surroundings. 

Regarding the batteries, Apple reportedly is studying the use of lithium iron phosphate (LFP) chemistry. These are not as dense as other types of batteries, but LFP power cells are less prone to overheating and do not contain cobalt. The significance of being cobalt-free is that more than 60% of the world's supply comes from the Democratic Republic of the Congo, and the mines in that country have become notorious for using child labor.

Challenges for Apple

Manufacturing and selling cars at a profit will be a major challenge for Apple. As a point of reference, Tesla took 17 years before it could generate sustained profits. Rather than building manufacturing operations from scratch, it is more likely that Apple will seek a manufacturing partner. Alternatively, it is possible that Apple will scale back its ambitions and, instead, develop an autonomous driving system for sale to established auto makers.

Trip Miller, managing partner at Gullane Capital Partners, which is an investor in Apple, agrees: "If Apple develops some advanced operating system or battery technology, it would be best utilized in a partnership with an existing manufacturer under license. As we see with Tesla and the legacy auto companies, having a very complex manufacturing network around the globe doesn't happen overnight."

Significance for Investors

Hal Eddins, the chief economist at Capital Investment Counsel, which also invests in Apple, questions the rationale that Apple may have for an entry into the vehicle market. In particular, he notes that Apple has a history of higher profit margins than most automakers. "[I] don't really see the appeal of the car business, but Apple may be eyeing another angle than what I'm seeing," he remarked.

Meanwhile, analysts at Morgan Stanley indicate that technology companies such as Apple represent "far more formidable competition than the established OEMs [in the auto industry]" to Tesla. They also write that the electric vehicle market represents a "large, fast-growing industry" in which Apple possibly can "dramatically improve the user experience" through the "vertical integration of hardware, software, and services."

Morgan Stanley observes: "Apple possesses the key ingredients that we believe are critical to be successful in the future auto industry: Access to capital, an ability to attract and retain top talent, proven hardware design (from HMI [human machine interface] to battery), and a rich ecosystem to leverage recurring subscription/service revenue."