Apple last week made a surprise announcement when it confirmed that it had made a $1 billion investment in Didi Chuxing, a ride sharing company in China that is often referred to as the Uber of China.
“We are making the investment for a number of strategic reasons,” Apple CEO Tim Cook explained, “including a chance to learn more about certain segments of the China market.”
Coy as ever, Cook’s somewhat cryptic remarks naturally led to an avalanche of speculation, particularly given rumors that Apple is developing its own electric car. Other commentators took the position that Apple’s investment was simply an old-fashioned way to curry favor with the Chinese government.
Shedding more light on the matter, Morgan Stanley analyst Katy Huberty issued a research note earlier today arguing that Apple’s investment presents a number of short-term and long-term advantages for the company.
“We think near to medium term opportunities include better integration of Apple products (CarPlay, Music, Pay), and Apple learning more about China and services business models,” Kuberty said. “Long term, if Apple chooses to launch a car, it can go to market as hardware-as-a-service instead of through traditional dealerships. An Apple autonomous car fleet paired with a leading (~87% market share in China) car sharing service creates a large addressable market.”
Huberty also brings up a few other interesting points. For starters, it’s no secret that China is well on its way towards becoming Apple’s largest market. What’s more, the opportunity for growth in China far eclipses similar opportunities in the United States and Europe where Apple products have long been available. Second, because much of Apple’s cash hoard sits overseas, it makes more financial sense for Apple to invest in overseas companies rather than bringing that cash home (and taking a huge tax hit in the process) in order to invest in or acquire US-based entities.
China screens as one of the most fertile markets for the development of shared, autonomous transport networks. Our team expects Chinese vehicle miles traveled to grow at a CAGR of 10% through 2030 with shared miles accounting for 34% of the total (22% of miles executed by EVs). Due to political and environmental factors (e.g., many large cities with high density, desire to own cars exacerbates pollution and traffic issues), we see China as proactively encouraging the development and commercialization of shared/autonomous technology faster than any other region.
It’ll certainly be interesting to see how this all plays out, especially if fully autonomous vehicles become a mainstream reality sooner than anticipated.