One of the worst kept secrets in Silicon Valley is Apple’s plans to build their own electric vehicle (EV). Since 2014, the technology company has been working on ‘Project Titan’ in its Cupertino headquarters. Plans have come to a halt due to leadership issues causing internal strife. In December 2020, the public learned that Apple still had plans to develop a full car. The firm has a number of options when it comes to developing its own EV. It can partner with a manufacturing firm which it is seriously considering with discussions Hyundai taking place previously.
The chart above show’s how Apple’s share price tumbled after it was public that talks had stalled between the two firms. Markets are placing a lot of importance on Apple’s EV ambitions and for Apple to become a bigger firm and generate greater investor confidence, it must signal to investors that its plans are back on track. One possible way of doing this is purchasing a EV Automaker. General Motors has bought stakes in Nikola and Lordstown Motors to build its EV portfolio. Despite having their own fleet of EVs, General Motors sees the importance of acquiring stakes in startups to gain market share and stay ahead of competition. A number of start-ups have yet to receive any backing from any major firms and acquiring one can present a number of opportunities to Apple.
Benefits and Drawbacks for Apple
Acquiring a firm specialising in the entire or subset of the manufacturing process brings two benefits: Access to technology and intellectual property, and availability of distribution channels in addition to increased client portfolio. For ‘Project Titan’ to be a success, it must have the foundations to build the best batteries and motors to generate electric power. Acquiring a firm specialising in batteries can help push Apple forward in its plans as there are a number of aspects it must develop and conduct research on to manufacture an entire EV. Secondly, automobiles traditionally have different distribution channels, and a system/infrastructure will need to be set up for Apple to sell its EVs. Owning a firm which is already doing this can help them jumpstart the process in terms of possible regulations and logistical constraints which could arise.
The acquisition trend hasn’t been as lively as much as minority investments have been in the EV sector. It is yet to be seen whether a full-fledged acquisition can help firms advance in their plans of building their own EV vehicles. In addition, Apple owning a completely different type of firm can prove to be difficult during integration. It has traditionally acquired software or hardware firms which are more inline with its product offerings. An EV firm has very different organisational specifications and far more PPE than most of Apple’s subsidiaries. Managing factories and equipment is certainly something which Apple does have experience in as it assembles its own devices, however dealing with different automated supply chains will require specialists to ensure successful delivery of the project. Despite these challenges, I believe Apple has the agility governance and structure wise to incorporate an acquired EV firm in their organisational structure.
The End Result
Apple will be one of the first few firms to engage in M&A activity in the EV space. This represents an opportunity as Enterprise Values and share price values will increase as more firms mature and start selling. Arguably, a lot of firms are trading at discounts and Apple would be wise to acquire firms which have a lot of potential and are destined to be key players in the EV market. It will help add to their intellectual property and give them a deeper insight into the manufacturing of EV vehicles which is necessary considering they still lack considerably in this field. Integration can prove to be cumbersome but given Apple’s history of acquiring and integrating firms, it’s likely acquiring an EV manufacturer or battery maker will not be of difficulty for the technology firm. Overall I believe engaging in M&A will improve shareholder value and help Apple become bigger than it already is.