The once highly-anticipated Apple car project appears to have come to an end, with the tech giant pivoting towards investing more resources into generative AI. Despite this significant shift in strategy, stocks of major auto companies like Ford Motor, General Motors, and Tesla remained relatively unaffected.
Lack of Concrete Details
After reports from Bloomberg surfaced earlier this week outlining Apple’s decision to pull the plug on its car venture, industry experts were not surprised. Speculation surrounding the Apple car has been ongoing for over eight years without any concrete evidence or prototypes being presented to the public.
Threat to Tesla?
Initially slated to be a self-driving electric vehicle, the Apple car posed a potential threat to industry leader Tesla and other car manufacturers. However, with the project now abandoned, the impact on the existing auto industry remains to be seen. Tesla CEO Elon Musk even took to Twitter to acknowledge the news with a salute and a cigarette emoji.
Market Reaction
Despite the significant development, Tesla’s stock price saw little movement, closing up at almost $200 per share. Similarly, Ford and GM experienced modest gains in their stock prices, showing resilience in the face of Apple’s strategic shift. The broader market saw minor gains as the S&P 500 and Nasdaq Composite both rose slightly.
The Unlikelihood of an Apple Car
It might be a surprising reaction for some investors who think one of the world’s most valuable companies—that generates roughly as much free cash flow annually as the entire global auto industry—getting into cars was a big deal.
Low Probability from the Start
While an Apple car might have been disruptive, it was always a low-probability event. The odds of an Apple car ever hitting roads were always very low—they might have gone from 10% to 0% on Tuesday. What’s more, if an Apple car ever were created it wouldn’t have arrived on roads until late in the decade, at the earliest.
Reasons behind the Unlikelihood
The reasons an Apple car was a low-probability event are myriad. For starters, automotive profit margins aren’t very attractive. Competition is fierce. Most of the value is derived from the hardware portion of the car—not the operating system. Building cars is also capital-intensive, and the process doesn’t lend itself well to outsourced manufacturing.
Conclusion
Even potentially big events won’t move stocks if they were unlikely to ever happen.
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