Apple Investing in Future With Chinese Ride-Sharing Company

Apple just paid $1 billion for an interest in China's No. 1 ride-sharing service, Didi Chuxing. Here's how it's laying the groundwork for the future.

Author:: Kat McKerrow
Publish date:: May 16, 2016 8:13 AM EDT

Apple (AAPL) - Get Report has a history of purchasing innovative tech startups to absorb that company's technology into its own products. Last week signaled a deviation from this pattern, as Apple invested $1 billion into China's answer to Uber, Didi Chuxing Technology.

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However, Apple's big investment is more than about acquiring new technology. It's a savvy move that brings Apple closer to developing an autonomous car. An Apple car could be the next ground-breaking product to send the company's stock price skyward. Apple shares have been floundering lately amidst disappointing sales. Its latest earnings missed analysts' estimates for revenue.

The investment also aligns the Cupertino, Calif.-based company with some of China's biggest, hottest Internet players.

Apple's development of a car has been the company's biggest open secret.

And Apple (as well as Didi Chuxing) is still maintaining an air of secrecy. On a conference call this morning, the Chinese company's president, Jean Liu, remarked that Didi Chuxing and Apple will "benefit each other on product, on technology, on many other levels" without elaboration.

Why, would Apple be interested in a ride-sharing startup if it's not working on an automobile? It's no secret that the ride-sharing industry is researching ride-sharing technology. Uber has been working on developing self-driving cars with the financial backing of Alphabet. Lyft has partnered with General Motors to do the same. That joint venture plans on testing autonomous Chevrolet taxis within 12 months.

Didi Chuxing is no tiny upstart company. It is currently valued at upwards of $20 billion. And it counts among its backers some of the biggest names in China's internet industry.

By investing in Didi Chuxing, Apple is aligning itself with Asia's e-commerce giant Alibaba, as well as Tencent, a holding company with subsidiaries in social media and online gaming.

Clearly, this is also a way for Apple to grow in China. That could prove handy when its newest iPhone model, the iPhone 7, is released this September.

According to Apple CEO, Tim Cook, "We are making the investment for a number of strategic reasons, including a chance to learn more about certain segments of the China market. Of course, we believe it will deliver a strong return for our invested capital over time as well."

Apple has been struggling lately. Sales of iPhones and iPads have been tepid. However, it's still a great company with strong fundamentals and the ability to benefit investors. The iPhone 7 or next years iPhone 8 could boost sales.

But the next blockbuster could be a self-driving Apple Car. Thanks to Apple's new relationship with Didi Chuxing, that development could arrive sooner than later.

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This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.