- Apple has reportedly approached McLaren and Lit Motors for possible mergers.
- The company is ostensibly moving to beef up Project Titan.
- Can Apple's Project Titan hurt Tesla Motors Inc?
Tesla Motors Inc. (NASDAQ:TSLA) has been the most dominant EV manufacturer in the world, with only traditional automakers such as General Motors (NYSE:GM) and Ford (NYSE:F) providing some sort of credible competition. But Tesla might soon have to contend with large tech companies with self-driving car ambitions such as Apple (NASDAQ:AAPL) and Alphabet Inc-C (NASDAQ:GOOG). The Financial Times recently reported that Apple had approached British automaker McLaren Technology Group for a strategic investment or a full takeover. McLaren Technology Group encompasses McLaren Automotive, McLaren Racing, and McLaren Applied Technologies. The company's value is pegged at $1.3B-$1.95B, chump change really for a company like Apple with more than $200B in cash.
Although McLaren dismissed those claims, past events regarding M&A activity shows that such dismissals are in no way conclusive.
Only a week ago, the New York Times reported that Apple had approached Lit Motors for a possible acquisition. Lit Motors was founded in 2010 and is headquartered in San Franciso. The company specializes in designing gyroscopically stabilized electric vehicles. Both Apple and Lit Motors have not commented on the rumors though its noteworthy that neither has denied them either.
Beefing up Project Titan
With the high volume of takeover rumors circulating, a wait-and-watch strategy is probably the best approach for investors. Nevertheless, it's quite clear that Apple is moving quickly to beef up Project Titan which is likely to feature EVs and self-driving vehicles to compete with Tesla and other EV makers. Although buying Lit Motors would be a rather stark departure from the supercar pedigree that we normally associate McLaren with, the deal still possesses its virtues. The company has already patented a motorcycle that's capable of balancing itself in an upright position, and the company's patent portfolio could find other applications in mainstream vehicles.
Lit Motors does not have a viable product yet, but perfectly fits the mold of Apple-style acquisitions where the company purchases a small technology startup and then integrates the staff and intellectual property of the company into its operations. If Apple goes through with the acquisition, it would probably develop a Lit motorcycle that would be compact enough to fit into an Apple store. This way it would immediately solve the problem of not having a distribution network for its vehicles.
In the case of McLaren, Apple would want its vehicles to be associated with the company's pedigree to avoid diluting its own brand. McLaren is a luxury brand that's synonymous with excellent engineering. There have been reports that Apple's Project Titan has been struggling to move forward. By acquiring a company like McLaren, Apple would get an immediate foothold in the automotive sector and probably shave off a couple of years from the development process. Apple has tripled its R&D spend to $10B expected this year, and many analysts believe that Project Titan is responsible for much of that.
Nothing for Tesla to worry about
Apple has been experiencing shrinking iPhone sales, and it's only natural that the company steps up its efforts to develop the next big thing. The company has a tentative date of 2019-2020 for its first electric vehicle.
But there's really nothing for Tesla investors to worry about--at least not any time soon. Tesla is too far ahead of the curve for anything that comes out of Project Titan to become a serious threat. For instance, Tesla has the massive Nevada Gigafactory which will help it enjoy considerable economies of scale by producing cheaper battery packs. This is not to mention the company's network of superchargers and distribution network that makes the company's vehicles viable in most states. By the time Project Titan is ready with its first product, Tesla will probably have already achieved its production goal of 500K vehicles per year.
Although Apple has been phenomenally successful with the iPhone, manufacturing vehicles is a different ballgame altogether. There have been rumors that the company intends to manufacture a vehicle with self-driving capabilities. But developing such capabilities usually depends on gathering driving data from millions of driven miles. That's how Tesla was able to respond so quickly when a Model S was recently hacked. Unless Apple acquires a company in this industry, it will take at least five years to develop fully autonomous vehicles.
Tesla investors have nothing to fear regarding reports that Apple is moving fast to beef up Project Titan. Although the company's financial muscle is second to none, it lacks the technological wherewithal to mass produce vehicles on a scale that would become a threat to Tesla. Traditional automakers such as General Motors are more likely to provide stiffer competition for Tesla than Apple.
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