MorningWord 12/30/13: Car Wars, $AAPL, $GOOG

by Dan December 30, 2013 9:24 am • Commentary

As reported by the WSJ last night in their story about the upcoming Consumer Electronics Show in Las Vegas, “Google, Apple Forge Auto Ties“, the battle for your car’s dashboard is on, and between the usual mobile suspects.  The Journal suggests: “With 80 million new cars and light trucks sold each year, automobiles represent a significant new opportunity for Internet-based software and services.”  While the opportunity is obvious for “smart dashboards”, the investment themes may not be at this stage of the game.

First things first, proliferation of such smart dashes are years away for the broad market.  In the near term, it’s likely to resemble integration of your existing mobile device through easier to use wires or Bluetooth.  But as is the case with the Tesla Model S, the smart dash is an integral part of the driving experience for a car that was clearly meant for early adopters.  See the image below – Google Maps is a main component of the dash, as is their search capabilities.  But from an investment standpoint, Tesla is only going to sell 20,000 cars this year and maybe 30,000 to 40,000 next year.


I would add one kind of obvious point – there will be massive restrictions placed on usage because of safety concerns.  My sense would be that the incremental search or related activity will likely come from solo drivers as most passengers already use their smartphones to pass the time.  At this point though, the collaboration between Silicon Valley and Detroit is very likely to result in products that will dramatically improve user experience, and as the Journal suggests, will build on existing technologies most consumers are very comfortable with, or maybe never even knew what their intended uses were for in the first place:

As they approach the auto market, technology providers are compelled to create offerings that don’t require drivers to take their eyes off the road or their hands off the steering wheel. Apple has some key technology in that field. The Silicon Valley company’s voice-based Siri technology, for example, can read out incoming text messages and emails, and let the driver dictate a reply.

Siri would be exhibit A.  I don’t find too many uses for it on my iPhone, but I am certain that a seamless offering in my car would be very valuable.

There is a certain sense of irony, though, that the likes of AAPL, GOOG and MSFT have sort of sidestepped the “LivingRoom” in place of in-car, as integrated TVs had been the focus of many players as the next stage of wireless integrated utopia.  It seems that the AppleTV may never come, and we will just be resigned to using our usb plugins and little set top box add-ons for the time being. But maybe that’s a good example as creating the ecosystem like Android and iOS where others make smart apps to control devices in your house isn’t necessarily the huge revenue source that technology theorists once thought.

To put some sort of revenue opportunity for a service in context, we can look at SIRI’s 25 million satellite radio subscribers, a service that can cost between $8 and $20 a month and should yield the company a little more than $4 billion in sales in 2014.  In my trade post on SIRI last week (here) I identified the fact that the company’s current beachhead in cars could make them a unique asset as innovation and collaboration of in-car multi-media services become mainstream.

The global opportunity for in-car technology services is obviously the real carrot for the tech industry.  Apple has to be on the lookout for only the largest opportunities in order to make a dent for a company that earns almost $50 billion in PROFITS each year.  In that sense, any move into cars has to be one that increases the size of the pie, rather than simply wins a slice of it.  As the tech behemoths expand the reach of mobile to every nook and cranny of our lives, the alliances and rivalries are surely to grow, with stocks following those shifts.  Mobile in cars could be one such alliance-shifting theme in 2014.