Apple Stock Is Up After Reportedly Ending $10 Billion EV Project

Apple reportedly killed Project Titan — its 10-year effort to build an electric vehicle that cost $10 billion, according to the New York Times — and will displace about 2,000 workers, according to a Bloomberg report.

Here are two reasons why this decision makes sense:

• The EV industry is becoming increasingly unattractive.
• Apple lacks the capabilities required to win EV market share.

This leaves Apple investors with a question I have been wondering about for years: Can the iPhone maker restore the 15% top-line growth it enjoyed between 2010 and 2019?

I do not know how that will happen.

Apple — whose stock rose 1% on the February 27 EV report — did not immediately respond to a request for comment.

The EV Industry Is Becoming Less Compelling

The EV industry used to inspire confident predictions of vast wealth flowing to those who competed there. In the last year, the industry reality has fallen way short of the bullish prognosticators. My guess is these industry challenges triggered Apple’s decision to cancel Project Titan.

Eight years ago, predictions of vast EV wealth were in the air. As I wrote in 2016, Morgan Stanley MS predicted EVs would add $400 billion to Apple’s revenue by 2030.

Morgan Stanley argued Apple was targeting the $2.6 trillion shared mobility market — meaning the cars and vans used by Uber UBER drivers. Morgan Stanley forecast that by 2030, Apple would own 16% of that market — the same as its iPhone market share in 2016 — resulting in $400 billion of revenue and $16 of earnings per share for Apple.

Apple is poised to widely miss Morgan Stanley’s forecast, falling $400 billion short of that prediction. In 2016, Apple appeared to lack the capabilities needed to win in the EV market, which was full of competitors with stronger capabilities.

Now the EV industry seems far less compelling than it did eight years ago. Here are some of the current challenges:

• Global slowdown is leading to bankruptcies. While automakers are investing in future EV demand, the slowdown contributed to three developments: bankruptcies (including Lordstown Motors, Proterra and Sweden's Volta Trucks), scrapped initial public offerings (France's Renault decided not to do an IPO of its EV business Ampere), and production cuts such as Polestar announcing plans in January “to cut about 15% of its workforce,” noted Reuters.
• Mainstream automobile customers are skeptical. While early adopters were willing to tolerate some inconveniences — such as finding public EV chargers, mainstream buyers are balking. Sameer Joshi, a car shopper, told NPR. “I look at them but I'm not going to buy them," he said. "Just because of the hassles with charging. And the second thing is cost. You know, they're too expensive. When I get something around $25,000 — yeah, I will consider buying them." That price is double the $50,798 average EV price, according to Kelley Blue Book.
• Price competition is intense. China reduced EV price subsidies and local consumers cut back spending — slamming the brakes on EV industry growth. Rivals — including EV startups and Tesla — were drawn into a “fierce price war in China,” reported the Wall Street Journal. BYD’s least expensive EV sells for $11,000 and EV overcapacity in China will be exported. BYD aims to export 400,000 vehicles in 2024, the Journal noted.

Apple Lacks What It Takes To Win EV Market Share

To win a sizable share of the now-shaky EV industry, Apple needed to prevail in two critical areas:

• satisfying automobile buyers’ customer purchase criteria more effectively than rivals did; and
• harnessing the industry-leading capabilities required to compete in the EV industry.

Apple — which never launched an EV during the decade in which Project Titan existed — faced enormous challenges in both areas. According to Apple’s Electric Vehicle, a business school case I co-authored with Babson College Professor Sam Hariharan, EVs generally fell short on the following automobile buyer CPC:

• Initial purchase price. Gasoline powered vehicles are more than 25% cheaper than EVs the case study noted.
• Upfront investment to cut battery charging time. A Level 2 battery charger cost $2,000 — which is not required for a GPV, according to the case study.
• Cost and time of refueling. A GPV took much less time — 10 minutes versus up to 40 hours at home — to refuel but was as much as two times more expensive to refuel than an EV, the case study added.
• Operating range. EVs have an operating range of up to 250 miles — which is lower if the ambient temperature drops. GPVs can go 250 to 350 miles on a tank of gas, according to The Zebra. Operating range is also crimped by a lack of charging stations. The U.S. averages “about 104 gas pumps per 1,000 road miles, compared to just 22 EV charging ports,” noted Motor.

Apple also lacked most of the key capabilities required to compete as a maker of EVs. As I wrote last August, shares of Vietnam-based EV maker VinFast were poised to take a beating after the company’s IPO because the company performed weakly on critical capabilities. The stock lost 93% of its value since then.

Here is my guess on where Apple stood with respect to those capabilities:

• Battery design, manufacturing, and distribution: unknown. Apple was in talks about partnering to make batteries. However, these talks fell apart, according to the Apple’s Electric Vehicle case study.
• EV design, manufacturing and distribution: unknown. Apple hired experts on EV design and manufacturing from BMW and Mercedes, our case study noted. It is unclear whether Apple had built any factories. CNBC reported Foxconn — an Apple partner for its electronics products — would make EVs. However, Apple was not a Foxconn EV partner.
• Supercharger network design, construction and operation: unclear. Beyond an Apple Maps service showing where charging stations were located, according to Cars.com, it was unclear whether Apple had a plan for a supercharger network.
• EV branding: potentially excellent. A 2022 survey of consumers found half of Tesla owners would be willing to consider buying an EV from Apple, noted Apple’s Electric Vehicle.
• Customer service: possibly good. Given Apple’s reputation for good service at its retail stores, it is conceivable Apple could have offered excellent service for EVs.

Canceling Project Titan means turning off a relatively small cash drain. “Apple canceling this project is a sigh of relief for us,” said Dan Morgan, a senior portfolio manager at Apple shareholder Synovus SNV Trust, told the Journal. “When you looked at Apple’s future initiatives, the car project was always the most far-fetched for Apple. This just isn’t in their wheelhouse.”

Apple will redeploy engineers and investments into “areas like artificial intelligence that could help its consumer electronics business,” Morgan told the Journal.

After eking out 2% revenue growth in the fourth quarter of 2023, Apple seems a long way from restoring the average 15% growth it enjoyed when Project Titan was launched.

While analysts project a 12-month price target of $200 per share, according to MarketWatch, I do not know where Apple will find the growth it needs to justify that rise.