Apple cites the need to focus on Generative AI and Spatial computing projects instead. Two thousand employees were affected; software employees are absorbed in AI, while hardware employees shall be reabsorbed case-to-case.

While Apple did not give any reasons for its actions, Techcrisp investigates. Why do technology companies Alphabet, Amazon, and Microsoft continue to spend billions in the AV sandbox? We also give projections of what incumbents in  Detroit, Germany, Japan, and China are doing and where this sector is heading.

Around a decade ago, Big Tech companies in Silicon Valley recognized that EVs would phase out vehicles powered by internal combustion engines (ICE) in 10-15 years. As a result, they anticipated a simplification in design, manufacturing, and supply chain. They also forecasted a potential shift in the traditional business model of selling cars to a sale-plus software subscription-based model. The software subscription would be for Autonomous Vehicle operations and other ADAS features. Cars would need advanced semiconductors and real-time autonomous driving software, which would be upgraded regularly based on continuous improvements in the model,  making vehicles more effortless and safer to operate.

As per the assumptions made by several companies, autonomous cars connected to high-speed 5G networks would eliminate the need for drivers and traffic disruptions, allowing passengers to utilize their commute time more productively. The vast amount of data collected by these cars would facilitate optimal car operation and maintenance, realistic insurance premiums, and monetization of passenger data. Additionally,  profit margins on such vehicles, apart from various subscriptions, would be high, and the ticket price would be around US$ 100,000.

Steve Jobs had considered Apple entering the automotive industry before passing in 2011. Following his departure, Tim Cook took over as CEO. Around the same time, Tesla’s revenue drastically increased from US$ 400 million in 2012 to US$ 2 billion in 2013. Tesla had overcome its initial challenges and started selling high-end cars. Tesla positioned itself as an AI company that aimed to change the perception of automobiles. Its market cap was soaring. These factors also motivated Apple to consider entering the automotive industry.

Apple green-lighted Project Titan in 2012/2013, and Tim Cook traveled to Munich to see BMW. The Apple chief executive spent several days touring its factories and design studios. Cook stunned a senior BMW executive by saying that the iPhone maker could turn its hand to replicating the car maker’s engineering and production capacity. In the last decade, Apple has talked to virtually every car maker but could not decide upon a long-term partner. In 2017, Tim Cook called this project the            ” Mother of all AI projects.”

Apple decided to use EV cars and convert them into prototypes for testing. The main objective was to make an Autonomous Vehicle that did not need a driver. The main challenge in creating an autonomous vehicle is the installation of various sensors such as LiDAR, radar, cameras, ultrasonic devices, GPS, and HD maps and integrating them with software to ensure that the onboard computers have real-time 360-degree situational awareness. The prototype vehicles drove millions of miles, collecting real-time driving data and creating a model using AI and machine learning algorithms. This model became, in simple terms, a Super Driver.

Consequently, the onboard computer would navigate the car safely by communicating with the motors, accelerator, brakes, and steering wheel to respond to changing situations in milliseconds compared to human drivers, who take seconds to respond.

Apple has withdrawn from a project without providing any apparent reasons. Given Apple’s substantial financial resources, it seems unlikely that lack of funding would be a reason for withdrawal, provided the project had a viable business model. Based on these observations, my analysis is as follows:

Apple was eyeing a high-end, high-margin sale and software subscription business. Market dynamics have changed. BYD, the largest LiB battery maker in the world, launched a slew of EVs with various levels of AV capabilities in the last two years, driving down prices and, in the previous quarter, overtaking Toyota’s shipments to become the most prominent car company.

China and its two major LiB companies, BYD and CATL, own 80% of the worldwide mineral to LiB pack supply chain. LiB packs contribute to 40 % of the cost of an EV. They are much more competitive.

Tesla, which had positioned itself as an AI disruptor of electric vehicles, is losing sales to competitors like BYD, especially in China. To increase sales, Tesla is offering discounts and price cuts. Starting of initially as a high-end sports car company, Tesla introduced midsize Series 3 and an SUV Model Y between 2018 and 2021, which were cheaper and less profitable based on market demand.

The adoption of electric vehicles by consumers in the US market is currently progressing at a slow pace. However, over the last decade, Chinese companies have caught up with the global trend of EVs, thanks to heavy subsidies from the Chinese Government and lower production costs. AV chips and software are now readily available from companies such as Mobileye (an Intel investment), Qualcomm (partners with GM, BMW, and Volkswagen), Bosch, and other semiconductor and technology players.

LiDAR technology and its associated sensors are still quite expensive. Tesla’s vehicles do not use LiDAR and are only certified for Level 2 AV, which means Partial Driving Automation. Level 2 vehicles can simultaneously control steering and acceleration/deceleration, but only under specific circumstances. Examples of Level 2 vehicles include Tesla’s Autopilot and Cadillac’s Super Cruise. However, it’s important to note that the human driver must remain alert and be ready to take control at any moment. Level 2 is not therefore a game-changer. Tesla has claimed that it has trained its models with billions of miles worth of data, and Elon Musk has been promising a Level 5 car for a very long time, which would be a truly autonomous car. However, for some reason, Tesla has not reached even Level 3 AV yet. It seems that like Tesla, Apple may have hit a technology road block.

Mercedes has recently launched a Level 3 car in Germany. In case of any accidents that may occur, the company has taken responsibility for paying for the insurance cost. Mercedes has also started charging a subscription fee for the software. Level 3 conditional driving automation vehicles can handle various driving tasks under certain conditions. Still, a human driver must intervene if the system encounters a situation it cannot control. Examples of such vehicles include the Audi A8 with Traffic Jam Pilot and the Honda Legend with Level 3 autonomous capabilities.

AV technology is relatively new. Waymo, a company acquired by Alphabet in 2009, uses Jaguar I-PACE cars for its car-hailing and taxi-sharing services. Full-blown trials began in Arizona in 2020, with continued trials in California. Additionally, regulatory approvals for more areas have been granted.

An accident involving a GM Cruise Robotaxi in California in October 2023 led to the suspension of the pilot project. GM is working on the technology, but a date has yet to be set for resuming the project.

Amazon acquired Zoox, an EV/AV company, in 2020 and started trials for shared taxi service a year ago.

Trials for autonomous vehicles (AVs) have been underway for only 3-4 years, primarily in limited areas in Arizona and California. However, for AVs to gain widespread acceptance, human behavior must undergo a significant shift, which could take years, if not decades. Currently, regulators and citizens in the US and other countries are skeptical about the safety of AVs.

Most incumbent car manufacturers have introduced or are introducing affordable EVs. In Japan, Toyota has launched a range of  EVs, hybrids, plug-in hybrids, and fuel cell-based cars. Renault has partnered with Nissan and Mitsubishi. Honda has introduced a Hybrid. Japanese companies have an edge on new battery technologies; they can compete with the Chinese.

Chinese companies such as BYD, Xiaomi, Geely, Hongg, MG, and NIO have entered the global market. These companies are taking advantage of Chinese government subsidies and lower prices of Lithium-ion battery packs to flood international markets, initially Europe. Higher tariffs and concerns regarding security still protect the US market.

Vietnam has also followed suit with VinFast. The price-sensitive Indian market also has various EVs available, though absorption at this time is low.

The initial assumptions made by US technology companies and automobile manufacturers regarding their potential to disrupt the car segment with high margins have been revised over time due to various market forces. The software subscription model is also under question. Currently, these companies would face stiff competition from established players and new entrants from China who would give away the software.

AV Level 5 (Full Driving Automation): Level 5 represents full autonomy, where the vehicle can drive itself in all conditions without any human input or intervention. This shall be the inflection point and we are not there yet. No Level 5 cars exist today, but many companies are working towards developing this technology, which will be a game changer. We are going through a very early stage of exposure to AV by prospective consumers in the world’s most advanced car market. AV-based car sharing is a great economic model. Individual-owned cars are used 5 % of the time, and that is a waste of resources. Car-sharing / ride-hailing taxi services optimize resources and are good in the overall economic context. They will be first to adopt subject to finances being available. AV’s will also ease traffic congestion and help urban planners. As trials become successful, technology matures and regulators as well humans get used to the idea, this market can become mainstream in 5 to 10 years.

In the case of EV regulatory requirements, climate change and the availability of charging infrastructure are essential drivers. Market absorption will be geography-dependent.

Without a doubt, Apple considered some of the issues mentioned before discontinuing its EV/AV venture.