Tesla Needs to Brace for Serious Competition from Apple

Earlier this month, Apple CEO Tim Cook elaborated on his company’s big ambitions in the automotive industry and the field of autonomous systems, publicly confirming for the first time what many observers had already known. The statement also poses something of a tacit challenge to Tesla, which is arguably the most prominent name in autonomous driving at the moment, and has analysts warning investors that the competition for investment and capital in the self-driving space is about to get even fiercer.

“We’re focusing on autonomous systems,” Cook told Bloomberg Television on June 5. “It’s a core technology that we view as very important.” Cook went on to call the self-driving car “the mother of all AI projects,” and conceded that it’s “probably one of the most difficult AI projects to work on.”

The existence of Project Titan, as Apple’s autonomous car team is called, has been an open secret for some time. Apple also famously invested $1 billion in Chinese ride-hailing giant Didi Chuxing last year. However, Cook’s recent declaration was the first and most forthright statement that he’s offered on the subject, making it clear that Apple is deeply invested in the race for the future of the auto industry.

“There is a major disruption looming there,” Cook said on Bloomberg Television, with regard to self-driving technology, electric vehicles and ride-hailing. “You’ve got kind of three vectors of change happening generally in the same time frame.”

The announcement prompted Morgan Stanley analyst Adam Jonas to issue a warning to investors of stiff competition looming in Tesla’s future. “In a recent Bloomberg interview, Apple’s CEO made some of the most candid and direct statements on the company’s position on disrupting autos and transport,” Jonas said in a note to clients on Wednesday. “Tesla investors must prepare for serious competition for talent and investment capital in this market.”

Apple isn’t the only major company to have thrown its hat in the ring, of course. Google’s Waymo unit is currently embroiled in an acrimonious legal dispute with Uber over allegations of stolen self-driving technology, and carmakers from Fiat Chrysler to BMW have moved into Silicon Valley knowing full well that the automotive industry is poised for major disruption in the coming years. Jonas downgraded Tesla shares in mid-May citing concerns of an increasingly crowded competitive field.

Even so, the news that Apple is officially a contender has analysts taking notice. While Apple is currently focused on developing software for an autonomous driving system, Morgan Stanley analyst Katy Huberty believes this is likely a precursor to building a full car and designing a platform third-party services (e.g. ride hailing). “This is because Apple argues it is most successful when it vertically integrates in a market, controlling the hardware and software and creating a platform (e.g. iOS + App Store + iTunes)” Huberty writes.

This will take a lot of money, which Apple has in spades. Huberty forecasts that Apple’s investment in R&D will grow to $17 billion by 2020, which “compares favorably” to the $11 billion that competitors like Facebook, Google, and Tesla are expected to spend over the next four years.

It’s also going to require plenty of real world testing on the road. Apple acquired a permit for self-driving tests from the California Department of Motor Vehicles in April, though Cupertino is rumored to have been conducting road trials in the San Francisco Bay area for at least a year. On the other hand, Tesla, being the more established company, has well over a decade of experience and data, leading Jonas to suggest an Apple-Tesla partnership or acquisition to make up for lost time.

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