Apple’s long flirtation with the auto business divides analysts

Wall Street analysts had a variety of reactions to a Reuters report on Monday that Apple could begin production of an electric car in 2024 based on new internally developed battery technology. The report rekindles rumors about Apple’s entry into the auto business, which was first reported in 2015. Apple has never commented on the reports.

While some analysts see the auto business as a great new market in which Apple can grow, others say the reported plan to make an Apple-branded car could coincide with the reality of the auto business: heavy investment for low margins.

Apple’s current business is based on selling premium computers, phones, and accessories. Cars are a lower-margin business, a different industry than Apple’s traditional strength, and it takes a large investment to make a car successfully.

Other analysts still see the car as a research project and not as an actual product development.

“Apple conducts R&D in many areas, and while we are not surprised that Project Titan for automobiles is once again being discussed in the media, we are highly skeptical that Apple will actually produce a car, as the profitability of the automotive sector it’s much smaller, “said Jim, an analyst at Citi. Suva wrote in a note.

Evercore analyst Amit Daryanani also doubts Apple will enter the large-cap, low-margin car business. But he suggested that if the company had successfully invented a breakthrough in battery or autonomous driving technology, it could make the project worthwhile.

Other analysts were more optimistic about Apple’s entry into the auto market. Apple investors have clamored for a major new product category as sales of iPhones, the company’s largest business, have not grown steadily in recent years. Some analysts pointed to the huge car market, as well as the time spent in them.

Analysts at Morgan Stanley said companies like Apple want to enter the auto industry not only because of the money that can be made selling cars and parts, but also because people who ride in cars are a captive audience whose time could be monetized. The team led by Adam Jonas and Katy Huberty cited an estimate that more than 600 billion hours of time are spent in cars per year.

Tesla’s meteoric share price surge (it’s up more than 600% this year) has analysts also see parallels with Elon Musk’s electric car company.

Baird analyst William Power wrote in a Tuesday note that cars are a multi-billion dollar market, a “great long-term global opportunity,” citing the firm’s forecast that Tesla’s revenue could grow 40% this year. at $ 42.2 billion, suggesting a possible outcome for an Apple-branded car. (Apple reported revenue of $ 274.51 billion in its fiscal 2020 year, with gross margins around 38%.)

Apple is also one of the few companies that has the resources to break into the auto market, analysts suggested, with its huge cash reserves and ability to recruit top technical talent. Apple could also benefit from a shift in the auto industry where computers and software are becoming more important for car sales, allowing it to emphasize its strengths in hardware and software design, analysts said.

“Vehicles are fast becoming ‘computers on wheels,’ so Apple’s back-end software / silicon / electronics could be helpful if it partners with a company like Magna,” wrote Daryanani, a contract automaker.

But the biggest question among analysts is how Apple would monetize its car project. One option is to sell Apple’s own cars. Other possibilities include selling mobility-related services or licensing software to traditional automakers, as the Reuters report suggests.

Analysts at Morgan Stanley suggested that Apple could sell some sort of transportation subscription, not competing with traditional auto companies that sell cars.

“It’s not that we believe Apple wants to enter the auto industry as today’s auto companies envision it,” Morgan Stanley analysts wrote. Instead, they think Apple may be aiming to build a better car experience using its design and software skills, and could monetize it through its current array of subscription products and services.

Veteran Apple analyst and Loup Ventures founder Gene Munster wrote on Monday that Apple’s car business has two possible paths: build an Apple-branded car or create software licensed for other automakers, but notes that that option would allow the appearance of the vehicle. be in the hands of other companies. That would be out of place for the iPhone maker, which values ​​control.

He believes Apple has yet to decide which way to go, but suggests that an Apple-branded car is more in line with the company’s past moves.

“This is Apple’s wheelhouse: find a large market where a competitor has already made progress, enter the market a few years later and revolutionize it,” Munster wrote.