Tuesday, January 26, 2016

Apple Car Development Hits Speed Bumps (AAPL)

Zadesky's resignation isn't the only challenge facing the Apple Car

After the close of the markets last Friday, The Wall Street Journal reported that 16-year Apple Inc. (AAPL) veteran Steve Zadesky had announced his intention to leave the company in the very near future, although a specific date for his departure was not revealed. Zadesky, who has been the head of the Apple Car project for more than two years, is apparently resigning for purely personal reasons.

While AAPL still has not formally confirmed the existence of its electric vehicle efforts, Project Titan has apparently been expanding at a rapid rate, with management approving an increase in the size of the project team to roughly 1,800 people. The current goal of Project Titan is to have a finished version of the all-electric Apple Car ready for consumers by the year 2019.

With Zadesky’s resignation looming, some have begun to question the viability of a complete Apple Car within the next few years. These concerns aren’t entirely based on the coming lack of Zadesky’s input, but also on the mounting reports about current status and conditions within Project Titan.

According to Stuff:
“Sources say that employees are struggling without ‘clear goals for the project,’ and that some of management’s deadlines are too ambitious to hit in the expected timeframes.”
However, those concerns are not shared by Dieter Zetsche, the Chief Executive of Daimler AG (DDAIF) and head of Mercedes-Benz. In a visit to Silicon Valley earlier this month, Zetsche stated that progress on the Apple Car has advanced further than he had originally anticipated.

This is in stark contrast to his comments last February, when he likened the notion of AAPL building an electric vehicle to Mercedes-Benz building a smartphone:
“If there were a rumour that Mercedes or Daimler planned to start building smartphones then they (Apple) would not be sleepless at night. And the same applies to me.”

Are Goals for the Apple Car Too Much Too Soon?

Last week, news surfaced that AAPL had hired Virginia Tech professor Doug Bowman, an expert in the fields of virtual and augmented reality, as well as 3-D user interfaces. Exactly where Bowman’s expertise will be put to use has yet to be revealed, but Tech Times has speculated that he’ll be in charge of developing a 3-D gesture-controlled interface for the Apple Car.

Bowman’s experience with VR and AR would certainly do wonders for an Apple Car touchless interface, but that represents only one facet of the entire vehicle. A plethora of regulatory hurdles would still need to be addressed, as well as challenges related to design, safety and battery life. Considering that AAPL is not an automaker and lacks the experience of behemoths such as Tesla Motors Inc (TSLA), endeavoring to build an all-electric vehicle from the ground up is a monumental effort.

Further, even if AAPL is able to successfully build the Apple Car, there’s no guarantee that it will turn a profit. Bob Lutz, Vice Chairman for General Motors Company (GM), said that not a single company worldwide that produces electric vehicles has made money on them.
“They are generally money losers and the only reason that everyone in (sic) producing them is because they are necessary to meet European fuel economy regulations and US fuel economy regulations. There is absolutely no reason to assume that Apple is going to be financially successful in the electric car business.”
Dan Akerson, retired CEO of GM, is similarly skeptical of AAPL’s entry into the automotive manufacturing arena, stating:
“They’d better think carefully if they want to get into the hardcore manufacturing. We take steel, raw steel, and turn it into car. They have no idea what they’re getting into if they get into that.”

Bottom Line on the Apple Car

Project Titan is, as Tesla CEO Elon Musk put it, an “open secret” that management has refused to acknowledge, but also one that’s difficult to hide at this point considering AAPL has hired more than 1,000 engineers and related automotive experts, as well as registered several vehicle-related domain names.

But, despite the seemingly massive talent pool — which Musk refers to as a “Tesla graveyard” — Project Titan has encountered a number of challenges that could threaten development of the Apple Car, potentially pushing back management’s goal of a 2019 release date.

Additionally, longtime auto industry experts from General Motors, plus the CEO of the world’s foremost electric car maker, have expressed doubts about the viability of AAPL as an automaker. It takes more than just money to become successful in the car business, and while Apple has plenty of cash to throw around, there are other facets to designing, building and selling automobiles that the company simply doesn’t have.

The impending resignation of Project Titan’s leader, Steve Zadesky, may not completely derail the Apple Car, but it will certainly put even further strain on the already-frustrated development team.

Ultimately, AAPL may reveal a functional electric car, but the relevant questions are when, and will anybody actually buy it?

Article originally appeared on InvestorPlace (01/26/2016)

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