On Friday, Apple (AAPL) - Get Apple Inc. Reportreceived an official test permit from the California Department of Motor Vehicles, seeming to confirm the rumors that the secretive company was working on a self-driving car project.
According to Loup Ventures founder Gene Munster, the permit to test cars in California was not a surprise. "Friday's news of Apple's permit to test self-driving cars in California should not have come as much of a surprise given the poorly kept secret of Project Titan," he wrote in a note to investors on Monday morning.
While Apple has not officially confirmed its autonomous car efforts, the New York Timesreported in September that the company had laid off dozens of workers from its self-driving car project known as Project Titan. Then in December, Apple submitted the following statement to the National Highway Transportation Safety Administration: "The company is investing heavily in the study of machine learning and automation, and is excited about the potential of automated systems in many areas, including transportation."
The big question remaining is whether Apple is working on hardware for autonomous vehicles or just software, according to Munster. The current permit allows Apple to test self-driving technology in three 2015 Lexus RX 450h luxury hybrid sport utility vehicles.
Based on Apple's history, it likes to be in control of both the hardware and software sides of its products to create the best experience for customers, he noted. Examples include the Mac and the macOS, the iPod and iTunes program and the iPhone along with iOS. But sometimes Apple can't control everything.
"In an ideal world, Apple's car project would involve the company building the actual automobile, combining hardware and software," Munster wrote. "In reality, the complexity of designing and manufacturing a vehicle may push the company to integrate deeply with an automotive partner or partners in an effort more similar to the Apple TV -- plugging Apple's technology into an existing product."
On the one hand, Apple is perfectly set up to produce excellent autonomous software, Munster said. It can use iTunes and Apple Music for entertainment, Siri as a voice assistant, Apple Maps for navigation, the iPhone camera for image processing, Touch ID for security and the App Store for third-party software.
But the hardware story is much tougher for Apple and will likely require a manufacturing partner. "It is not a manufacturing company, but a design company," Munster said. Already, Apple uses Foxconn (FXCOF) and other manufacturing partners to build iPhones, iPads and Macs, so Apple may look to another company to build its autonomous vehicle hardware. Munster cited Austria-based car manufacturer Magna Steyr as a possibility here.
The time table for Apple's Project Titan is fairly long, considering a typical car design process takes five to seven years, Munster said. The quickest time table would still put Apple years away from a finished hardware design for the cars. "Apple is the best connected device maker in the world and the car is the biggest connected device in the world," he said. "There is a natural fit in the self-driving car market if Apple can figure out how to get past the challenges of making the hardware."
In addition, tech rivals Tesla (TSLA) - Get Tesla Inc Report and Alphabet's (GOOGL) - Get Alphabet Inc. Class A Report Google both have multi-year leads on Apple when it comes to developing self-driving car technology, Munster pointed out. But despite their leads, traditional car companies such as Ford (F) - Get Ford Motor Company Report and General Motors (GM) - Get General Motors Company Report might actually be the best positioned to take their autonomous car efforts to market in the coming years, according to a study released by Navigant Research in April. That's primarily because, like Apple, Tesla and Google don't have their own manufacturing plants already set up like Ford and General Motors do.