It feels like the boom that never really began.
Or if it did begin, it has peaked way below the promise.
We write, of course, about the electric vehicle (EV) industry… And the news today that Apple (AAPL) has decided to end its EV program.
If you didn’t know Apple had an EV program, you didn’t miss much.
After 10 years and several billion dollars, the top brass at Apple figured building a car isn’t as easy as building a smartphone.
It’s another example of a company and its executives not sticking to their knitting… thinking they can replicate what they do in one industry in another.
Turns out, you can’t. It makes us wonder: does Apple’s move signal the beginning of the end of the entire EV industry?
Or is it simply part of the necessary “clearing out” of an industry as it shifts from the early stage of development towards mass adoption?
We’ll share a thought or two on that today, and the investment opportunities it presents. Before we get to that, this…
Market Data
The S&P 500 closed up 0.2% to end the day at 5,078.18… the NASDAQ gained 0.4% to close at 16,035.30.
In commodities, West Texas Intermediate crude oil trades at $78.62 up $1.05…
Gold is $2,039 per troy ounce, down $3 from yesterday…
And bitcoin is $56,785, up $2,396 since yesterday.
And now, back to our story…
10-Year-Olds Are NOT the Demographic for Cars
As Bloomberg reports:
Apple Inc. is canceling a decade-long effort to build an electric car, according to people with knowledge of the matter, abandoning one of the most ambitious projects in the history of the company.
Apple made the disclosure internally Tuesday, surprising the nearly 2,000 employees working on the project, said the people, who asked not to be identified because the announcement wasn’t public. The decision was shared by Chief Operating Officer Jeff Williams and Kevin Lynch, a vice president in charge of the effort, according to the people.
The report went on to note that Apple, “started working on a car around 2014, setting its sights on a fully autonomous electric vehicle with a limousine-like interior and voice-guided navigation.”
This news comes just a month after reports that Apple was only scaling back the project. Now it’s terminating it.
That’s $1 billion a year for the past 10 years down the drain. So much for the idea that Apple could do to the car industry what it did with the phone industry.
The biggest reason why Apple couldn’t make it work?
To us, it’s quite simple. One of Apple’s key demographics – 10-year-olds to 30-year-olds – either can’t legally drive or don’t care about cars as much as previous generations.
The ideal Apple customer is more likely to be someone living in a big city where having a car isn’t all that important. And we’re not just talking about the U.S.
In other markets, particularly Europe, where public transport is everywhere, their core demographic isn’t a car-buyer. Maybe if Apple had launched e-bikes, that could have been a different story!
Secondly, it seems as though Apple put all its time and effort into the autonomous driving aspect of the business, without getting to market with a standard user-driven car first.
Remember, while Tesla (TSLA) has made leaps and bounds with its self-driving software, it only added that to its cars after launching a standard EV.
It then spent years soaking up data from real-life driving and road situations. And even after all that, it’s still not perfect… and probably never will be.
But with Apple, from what we can gather, they wanted to launch everything at once. A mistake, especially when the market isn’t ready for self-driving cars yet – certainly not at the mass-market level.
And in our view, we’re not convinced there will ever be a market for only self-driving cars. At least not for many more decades.
Why? Human behavior. It doesn’t matter who you are, everyone thinks they know a quicker route than the satellite navigation system in their car.
The sat-nav will suggest a route, but as soon as it suggests a “weird” way, or there’s a sudden build-up of traffic, it’s a driver’s natural instinct to believe they know how to get where they’re going quicker.
And of course, there’s no way of proving it one way or the other. The driver will always believe they got there quicker because they ignored the sat-nav.
It would be the same with self-driving cars. At some point, the driver will believe the car isn’t going fast enough or is going the wrong way. They’ll switch it off and drive themselves.
So not going for the two-step approach was a terrible decision by Apple. It’s one thing to design a fits-in-the-pocket phone and have the Chinese make it for you. It’s another thing to design a car for everyday road usage.
Even Tesla still struggles with that. Remember the recent pictures of frozen EVs that couldn’t recharge?
So if Apple won’t be the EV winner, who will be?
When it comes down to it, we’d continue to bet mostly on the existing carmakers, especially German and Asian manufacturers.
For a start, their key demographic isn’t below the legal driving age. That helps. Second, they already have loyal repeat customers. Those who have likely bought the same car brand over and over again for decades.
And sure, you can throw Tesla in with that too.
But here’s the thing. That still doesn’t mean any of the carmakers are good buys. It’s likely that over time, EVs will gradually take more and more market share away from gas-powered cars.
And as they do, that will put more pressure on costs and, most of all, margins. Meaning that the car industry’s thin margins will simply flow into the EV industry.
Those who think EVs are a new get-rich-quick megatrend are likely to be disappointed. One thing is clear from the Apple news… While the EV industry isn’t dead (and likely won’t die), the hype surrounding it is over.
In short, if you want to make money from it, the best years for EVs are over. It’s no more exciting than a utility stock or a retail stock.
Our advice: move on and find something else… a sector with genuine innovation and genuine decades-long growth potential.
More Markets
Today’s top gaining ETFs…
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Invesco Dorsey Wright Healthcare Momentum ETF (PTH) +4.2%
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KraneShares MSCI China Clean Technology ETF (KGRN) +2.9%
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Invesco China Technology ETF (CQQQ) +2.7%
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KraneShares Electric Vehicles and Future Mobility Index ETF (KARS) +2.6%
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iShares MSCI Chile ETF (ECH) +2.5%
Today’s biggest losing ETFs…
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iShares MSCI Turkey ETF (TUR) -1.6%
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U.S. Global GO GOLD and Precious Metal Miners ETF (GOAU) -1%
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Invesco Taxable Municipal Bond ETF (BAB) -0.9%
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VanEck Gold Miners ETF (GDX) -0.8%
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iShares MSCI Thailand ETF (THD) -0.7%
Cheers,
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Kris Sayce
Editor, The Daily Cut