Autonomous Mobility Takes Another Blow: This Time It’s From Apple


  • Apple continues to stay mum on its car project, though recent reports indicate that it has again delayed the new product segment’s launch.
  • In addition to the delay, Apple is also considering taking its ambitions down a notch by overhauling the previously driverless vision.
  • The development is the latest in a slew of changes observed across the autonomous mobility sector this year that indicates driverless cars are becoming further out of reach.
  • The following analysis will provide an overview of recent developments and market expectations for the autonomous mobility sector, and discuss the fundamental implications of alleged changes to Apple’s auto ambitions.

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Industry sentiment over autonomous mobility is gradually shifting support from full autonomy to ADAS (advanced driver-assistance system) instead, dimming previous excitement on the anticipation for materialization of driverless cars within the foreseeable future. Following the abrupt shutdown of Ford- (F) and Volkswagen-backed (OTCPK: VWAGY / OTCPK: VLKAF / OTCPK: VWAPY) Argo AI last month, Apple’s (NASDAQ:AAPL) recent decision to not only delay its auto debut by a year to 2026, but also dial back on its aspirations for fully autonomous vehicles (“AV”) deals another blow to hopes for commercializing said nascent technology category anytime soon.

The following analysis will provide an overview of AV developments and opportunities today, as well as Apple’s recent decision to scale down its ambitions in the field, and discuss their implications on the tech giant’s longer-term prospects. Although the anticipated roll-out delay and step-down from pursuing Level 5 AV to potentially Level 4 or below may seem like a setback for Apple, we view it as a prudent strategy that just might make more sense from both a fundamental and valuation standpoint.

An Overview of AV and ADAS Today

The rapid shift in consumer preference for electric vehicles (“EVs”) decked with premium high-tech features has lifted optimism for the development of complementary AV technologies in recent years. The lower total cost of ownership for EVs has also led to speculation of how accommodative AV technologies could become a potential solution for labor shortage headaches most prominent across commercial fleet operators, and enable further improvements to the economics of car ownership for the massive addressable market.

Yet, a reality with fully autonomous vehicles has only become more distant in recent months, especially given how the capital-intensive endeavor of developing related technologies bodes unfavorably under the current market climate blighted by surging capital costs. Regulatory hurdles are also pushing the commercialization timeline for AVs further into the future. Instead, industry is starting to see pent up demand for ADAS, as automakers look to better outfit their vehicles against competing offerings, while also capitalizing on an opportunity to dial up prices and bolster profit margins at the same time.

ADAS, which can be as simple as cruise control or blind spot detection, is already found in the majority of passenger vehicles sold over the past decade. And growing regulatory acceptance for ADAS features in passenger vehicles has only led to increased momentum in the adoption of Level 2 and Level 3 semi-autonomous driving technologies – which still require drivers’ attention – in recent years. In the EU, all new vehicles launched from mid-2022 onwards requires key ADAS features including intelligent speed assistance to advanced emergency braking systems. Meanwhile, in the U.S., the NHTSA is also recommending similar on the grounds of enhanced road safety.

Because of slowed momentum in the development of fully autonomous vehicles (i.e. Level 4 to Level 5), we expect more consolidation to occur within the industry over the near-term, with bits and pieces of the technology that can be applied in both ADAS and autonomous driving taking precedent, and those particular to autonomous driving potentially put on pause until the market environment recovers. This is consistent with companies like Argo AI that has now been shut down with “parts” of its resources reallocated and “absorbed by Ford and VW”; Apple’s recent decision to abandon plans for a steering wheel- and pedal-free car; and deployment of add-on Level 2 / Level 3 ADAS software like GM’s (GM) Super Cruise, Ford’s BlueCruise, and Tesla’s (TSLA) Full Self-Driving (“FSD”) taking precedent over the previous urgency of commercializing Level 4 / Level 5 autonomous driving.

Level 1 to Level 3 ADAS can already be found in half of new passenger vehicles sold worldwide in 2022, with the penetration rate reaching 75% by the end of the decade. Looking ahead, Level 2 and advanced Level 2 features just under Level 3 (or dubbed “Level 2+”, which still requires drivers’ full attention when engaged), will be the fastest growing category of ADAS technology, driven by more attractive economics for component suppliers and automakers and safety considerations for consumers.

Specifically, Level 2 ADAS deployment is expected to advance at a 6% CAGR from now through 2030, with deployment across more than 32 million vehicles by 2030 from about 20 million vehicles today. Inclusive of Level 2+ deployment, which is expected to grow the fastest at a 58% CAGR from implementation in about 300,000 vehicles worldwide today (< 1% penetration) to 13 million vehicles by the end of the decade (~13$ penetration), total Level 2 ADAS deployment is expected to grow at an 11% CAGR through the end of the decade.

Level 3 adoption is expected to pick-up momentum later in the decade as Level 2+ technology graduates upwards with the deployment of more robust regulatory oversight over time. Level 3 ADAS can only be round in a handful of vehicles today, primarily in testing and pilot programs pertaining to autonomous vehicle development, but is expected to reach a 5% penetration rate with deployment across 5 million vehicles worldwide by 2030.

Meanwhile, Level 4 and Level 5 deployment will likely remain nominal within the foreseeable future due to uncertainties over the economics, technological feasibility, safety considerations, and regulatory framework for fully autonomous driving without drivers’ attention behind the wheel. Level 4 autonomy, which does not require a driver to takeover when engaged under only limited conditions, is currently expected to reach a 3% global penetration rate with deployment in under 3 million vehicles by the end of the decade at best. The outlook on Level 5 autonomy, which does not require a driver to takeover when engaged under all conditions, is faced with greater uncertainty, with some not expecting commercial deployment to materialize within our lifetime.

The Scoop on “Project Titan”

Although Apple has yet to formally acknowledge its foray in the vehicle segment, it has been keeping “Project Titan” – the codename for its first electric autonomous vehicle – under the wraps for years. Time and again, Project Titan would make news headlines, which more often than not point to setback after setback, spanning management reshuffles and delays.

The first Apple car was initially scheduled for debut in 2024, with the company looking to roll-out the most innovative product of its type yet. Not only would the vehicle run on a fully battery electric powertrain, but Apple also had ambitions of making it a fully driverless car (i.e. Level 5 autonomy) that would eliminate the need for a steering wheel and pedals, enabling a whole new experience for passenger vehicle ridership. And building on its growing prowess in in-house developed silicon in recent years, Apple’s car will be powered by its proprietary “onboard computer system, codenamed Denali, and a custom array of sensors [capable of] performance equal to about four of [its] highest-end Mac chips combined”. The car has also been reported to feature cloud-based AI processing capabilities to differentiate it from other connected vehicles available on the market today.

But in the latest turn of events, it seems even the tech giant cannot dodge the regulatory and financial hurdles of materializing said ambitions. In addition to delaying the launch of its first car to 2026, Apple is likely considering taking its vision a step down from Level 5 to Level 4 autonomy, which would put the steering wheel and pedals back into the driver’s seat:

In a significant shift for the project, the company is now planning a less-ambitious design that will include a steering wheel and pedals and only support full autonomous capabilities on highways… Apple currently plans to develop a vehicle that lets drivers conduct other tasks — say, watch a movie or play a game — on a freeway and be alerted with ample time to switch over to manual control if they reach city streets or encounter inclement weather.

Source: Bloomberg

Implications for Apple’s AV Ambitions

Apple currently allocates about $1 billion in capex per year towards Project Titan. And the shift from a fully autonomous Level 5 vehicle with a “limousine-like interior where passengers could face each other” to now a semi-fully autonomous Level 4 vehicle with a traditional driver’s seat in place underscores the massive extent of work left to do and dollars to be spent before we hear any official word on it from Apple. The transformed design and vision also implies the nascent and fluid state of the project today, meaning customer deliveries and real returns from the product will not materialize until the latter parts of the decade – even if it successfully launches by 2026. The latest market expectations for the development and commercialization timeline of Level 4 / Level 5 driverless AV technologies

But with the increasingly bleak prospects for fully autonomous driving being commercialized anytime soon, Apple’s shift to Level 4 autonomy may not be at all a setback. While the shift might subject Apple to greater competition among peers counting Alphabet’s Waymo (GOOG / GOOGL) and GM’s Cruise (GM), it could be a strategic mean to fast-track returns on heavy investments deployed to date and turn the gradual process of materializing Level 5 autonomy development into a self-funded endeavor over the longer-term.

Fundamentally speaking, consumer behavior is currently more attentive to Level 2+ / Level 3 autonomy, and will likely adapt to Level 4 autonomy better within the foreseeable future instead of full Level 5 autonomy, especially given little regulation framework over the nascent technology today. For Apple in particular, its reputation as a “gatekeeper in the tech world” with a consistent track record of bringing innovative products to the mainstream is likely to reinforce the success of its planned foray in Level 4 autonomy. We view Project Titan’s shift to Level 4 autonomy as a prudent strategy to potentially secure better demand and take-rates on Apple’s first car, especially if the tech giant intends to leverage its existing customer base bolstered by its ecosystem of accommodating devices and services. Returns generated from its investment into Level 4 autonomy first would also make a favorable contribution to continued R&D efforts on ultimately materializing its Level 5 autonomy aspirations over the longer-term, making the project more financially viable for Apple.

Final Thoughts

Apple’s entry to the auto industry is heavily looked forward to by both investors and consumers alike. In a recent survey of car owners in the U.S., more than 25% of respondents have indicated interest in buying a vehicle from Apple in the future given the brand’s “reputation for quality”. Even current EV leader Tesla is at risk of losing its crown, with more than half of Tesla vehicle owners surveyed having indicated interest in Apple’s future foray in autonomous mobility.

This continues to corroborated our expectations discussed in the earlier section that Apple’s Level 4 autonomy would be a prudent strategy to not only fast-track returns on related investments given its ability to leverage a massive loyal customer base and override current skepticism over future demand for the nascent technology, but also build and bolster momentum for its entry to Level 5 autonomy over the longer-term. Although Apple has largely kept the whole “car thing” under wraps, we believe recent reports that the tech giant is considering a shift down from Level 5 to Level 4 autonomy implies the debut of an Apple Car within the foreseeable future is getting a step closer to reality rather than a setback.

Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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