From the time that the first reports of an Apple (AAPL) - Get Report car project emerged in early 2015, questions existed about whether Apple could pull off a feat as daunting as becoming a large-scale manufacturer and seller of electric cars. It was, after all, something that would be both costly and require Apple to develop many skills outside of its traditional wheelhouse.
The latest reports about the project, codenamed Titan, suggest Apple is starting to think it bit off more than it can chew. That provides a fresh reason to appreciate what Tesla Motors (TSLA) - Get Report, for all its missed targets and occasionally-questionable claims, has accomplished over the past decade.
Citing three sources who were briefed on the move, The New York Times reports that Apple has "shuttered parts of its self-driving car project and laid off dozens of employees." It adds that while Apple now has "a number of fully autonomous vehicles in the middle of testing, using limited operating routes in a closed environment," Apple's car team "encountered a number of problems" as its ranks grew above 1,000, and that workers "struggled to explain what Apple could bring to a self-driving car that other companies could not."
The NYT report comes less than two months after Bloomberg reported Titan is now "prioritizing the development of an autonomous driving system" rather than the creation of a full-blown car. Apple reportedly hasn't abandoned the latter goal, but also wants to keep its options open should it choose to partner with an existing automaker.
And multiple reports state Titan is now overseen by Bob Mansfield -- he was once Apple's hardware engineering chief and is well-respected, but has never previously worked in the auto industry. Echoing Bloomberg, the NYT says that under Mansfield, Titan's focus has shifted from "designing and producing an automobile to building out the underlying technology for an autonomous vehicle." By contrast, The Wall Street Journal reported only a year ago that Apple was hoping to launch an electric car by 2019.
The latest reports have to be disappointing for anyone hoping that cars -- perhaps the largest untapped market Apple could realistically address -- will be Apple's Next Big Thing™. But considering all of the challenges involved in becoming an automaker, they're only moderately surprising.
For starters, designing cars is very R&D-intensive. According to PwC, 5 of the world's 15 biggest R&D spenders in 2015 were automakers (Apple, for those wondering, was the 18th-biggest spender). Developing an electric car from scratch would require major investments in motor, battery, drivetrain and software R&D, among other things. And many of those investments would require workers with a very different set of engineering skills than those needed to design iPhones or MacBook Pros.
Becoming an automaker would also likely require Apple, which outsources the manufacturing of most of its hardware, to become well-versed in the industrial mass-production of a product featuring thousands of parts. That includes many complex parts whose reliable functioning can be a matter of life and death.
Which brings us to another issue: Apple, which owns one of the world's most valuable brands and is known for its sky-high customer loyalty rates, has to be certain that any car it launches meets the company's impeccable hardware standards. Any failure to do so, either because its car is unreliable or delivers a subpar user experience in important respects, risks tarnishing that brand.
There are also nuts-and-bolts issues to consider, such as financing car sales, creating a global chain of dealerships to sell and service Apple cars, and making sure (either through internal efforts or partnerships) that drivers have access to a network of high-speed charging stations.
No wonder self-driving technology pioneer Alphabet (GOOGL) - Get Report has shown little interest in being an automaker itself, and has instead sought partnerships with existing automakers to bring its autonomous driving systems to market.
All of these challenges, which Apple appears to have received a crash-course in over the last couple of years, show why Tesla's accomplishments are still in many ways under-appreciated. As justified as the criticism of Elon Musk's "hype machine" can be at times, the fact remains that Tesla has, virtually from scratch, become a high-volume maker of cutting-edge electric cars featuring very high customer satisfaction ratings.
Along the way, the company has also become a leader in autonomous driving systems, touchscreen dashboards and battery pack technology, among other things. It has also built highly automated factories to produce its cars and created a large high-speed charging network to power them, and just recently opened up the world's largest battery factory.
The breadth of these accomplishments also perhaps drives home the importance of having a visionary leader to spearhead a company's expansion into big new markets. Tesla certainly has one in Musk. Apple, for all of the talent possessed by Tim Cook and those below him, no longer does.
This naturally raises the question of whether Apple, whose M&A chief reportedly met with Musk in 2013, would consider making a bid for Tesla. With Tesla currently worth $30 billion and Musk likely to demand a healthy premium, however, it's best for investors not to hold their breath.
At the same time, Musk has refused to rule out the possibility of an Apple acquisition. And given what has been reported about Apple's car efforts, the odds now of an Apple bid might be a little higher than what they were at the start of the year.