Apple will create mega competition with Uber Technologies Inc. in China with its purchase of Didi Chuxing. Didi is already Uber’s top competitor in China, and currently dominates the car-hailing market there. Tim Cook said:
“We are making the investment for a number of strategic reasons, including a chance to learn more about certain segments of the China market. Of course, we believe it will deliver a strong return for our invested capital over time as well.”
Didi, valued at $20 billion, told reporters that the $1 billion investment from Apple is the largest the company has received to date. The company holds 87% of the private car-hailing business in China, with over 11 million rides per day.
This all comes about a day after Apple Analyst Neil Cybart posted in his blog, Above Avalon, that he believes Apple’s first quarter Research and Development spending shows a pivot to the Apple Car. The company spent $2.51 billion in the first quarter. At this rate, we could see a total of $10 billion spent on R&D this year alone. Today’s news adds another instant billion to Apple’s spending.
Cybart argued that in the past, and typically, unexpected large R&D increases usually show that the company is prepping for a major launch. Cybart explained:
“There are only a handful of logical explanations for Apple’s current R&D expense trajectory, and all of them result in a radically different Apple. In a few years, we are no longer going to refer to Apple as the iPhone company.”
“Apple is not spending $10 billion on R&D just to come up with new Watch bands, larger iPads, or a video streaming service. Instead, Apple is planning on something much bigger: a pivot into the automobile industry.”
“I don’t consider Titan to be just another project that Apple has been tinkering around with in the lab for years like an Apple television set or Apple Pencil. Instead, Project Titan is much more about building a foundation for Apple that will literally represent the company’s future.”
During a time that Apple is facing its first quarterly revenue decrease in thirteen years, this is all adding up to something big. Analysts have noted that it may be time for Apple to make a major pivot away from the iPhone. Some say that the company is switching more focus to services rather than product lines. Services such as Apple Music, Apple Pay, and Car Play are on the top of Apple’s list. Now another major service will become key.
Analyst Patrick Moorehead of Moor Insights and Strategy said:
“After all the hints about the service business and what they would like to do in the future, it’s all starting to fit together.”
Tim Cook emphasized Apple’s focus on “in-car experience”, referring specifically to the Car Play app. He again hinted:
“That is what we do today in the car business, so we will have to see what the future holds.”
Didi has also recently set up an international partnership with Lyft, one of Uber’s top U.S. competitors. Lyft has gained recent momentum as General Motors has bought into the company. Didi has reported partnerships with similar companies in India and Southeast Asia.
Jean Liu, Didi’s president, is very positive about the deal. It shows that Apple has confidence in China. She concluded:
“There’s a lot of things we can work on together.”