Investing.com -- Apple's reported decision earlier this week to scrap its plans to create an electric car could help boost the tech giant's push to develop its artificial intelligence capabilities, an analyst at Edward Jones has told Investing.com.
An Apple Electric Car
Citing people familiar with the matter, Bloomberg first reported that California-based Apple (NASDAQ:AAPL) is canceling its decade-long, multi-billion dollar effort to carve out a place in the market for battery-powered vehicles.
Code-named Project Titan, the initiative was launched around 2014, with Apple eventually hoping to produce a fully autonomous car that would be guided by voice commands. However, leadership changes and strategic overhauls weighed on the project's progress.
More recently, high prices for electric vehicles and a relative lack of general charging infrastructure have led to a slowdown in consumer demand. The trend, as well as supply chain constraints, have persuaded car groups Ford (NYSE:F) and General Motors (NYSE:GM) to shift their focus away from electric vehicles and towards hybrid options. Meanwhile, Elon Musk's Tesla (NASDAQ:TSLA) -- considered one of the foremost EV players -- has warned that sales growth would be "notably lower" this year.
What Analysts are Saying
Apple announced the end of its EV ambitions in an internal disclosure on Tuesday, various media sources reported. Chief Operating Officer Jeff Williams and Kevin Lynch, an executive involved with the project, shared the decision to the nearly 2,000 staffers working on the effort, Bloomberg reported.
Reports also said that employees on the car team would be shifted to Apple's artificial intelligence unit, where they would focus on developing generative AI -- a nascent technology that has become a crucial strategic pillar for Apple and the wider tech industry.
Apple has so far declined to comment on these reports. The company and its Chief Executive Tim Cook have largely stayed quiet on the car project, referring to it only as work on "autonomous systems."
In the short term, Apple is now likely able to ratchet down research and development expenditures that were being poured into its EV plans, Logan Purk, a Senior Research Analyst at Edward Jones, told Investing.com. Apple has never disclosed its outlays on the effort, although overall research and development spending in 2023 touched around $30 billion, up 14% versus the previous year.
"Longer term this move frees up internal resources to focus on other areas such as white-hot AI applications, which is an area Apple has thus far lagged behind peers," he added.
Apple has been slower to fold AI into its offerings, worrying investors who are also eyeing waning demand for the company's flagship iPhone device and fierce competition at its key Chinese operations.
Cook told shareholders on Wednesday that the firm would unveil its plans to put generative AI to use later this year, describing current investments in the area as "significant."
But Purk flagged that Apple's decision to ditch its EV plans removes what was a "new massive market" for the business.
"Companies of Apple's size are always looking for new markets to penetrate in order to move the growth needle, which is why autos and health care have drawn interest from several large tech companies over time," he said. "This announcement by Apple shows how difficult it is to break into the market with a differentiated product."
Impact on Apple stock
Investors seemed to welcome the news that Apple was canceling its car plans. Shares in the group rose on Tuesday following Bloomberg's initial report, although Purk argued that for most shareholders the move was a "non-event" because they had not factored the launch of an Apple vehicle into their expectations.
Analysts at Morgan Stanley also said that it "should not come as a shock." But they noted that Apple's car strategy remains "in play," pointing in particular to the capability of its CarPlay software, which allows drivers to access iPhone features.
Even still, Apple's decision is "negative" for the wider electric vehicle and autonomous vehicle market, the Morgan Stanley analysts said. They added that the company's talents and capital would likely have accelerated scientific developments in the auto industry, while also contributing to an improvement in supply chains and an expansion in infrastructure.
"A company with Apple's pedigree ‘turning away’ from auto in order to focus on [generative AI] and [large language models] is seen by some investors as a 'sad day' for Auto 2.0," the Morgan Stanley analysts said in a note to clients on Wednesday.
Learn more about Apple
Since its inception in 1976, Apple has often been at the forefront of advanced personal tech, embodied first by its co-founder Steve Jobs and then by current CEO, Tim Cook.
Investors can learn more about this tech titan’s journey with our article on Apple facts, statistics and sales figures.