Connected cars make up less than 10% of auto sales today, but their share is expected to skyrocket to 80% by 2020
Ever since the reports surfaced that Apple was secretly working on an electric car, industry experts, investors and analysts have been trying to gauge how it would affect Tesla. But the iPhone maker’s automobile plans may affect more automakers than just Tesla, if a new report from Goldman Sachs is to be believed.
EV market still in its infancy
Apple has hired more than 60 former Tesla employees by offering them outrageous salaries. According to a new report from Tim Higgins of Bloomberg, the company’s car team is planning to launch the electric vehicle by 2020. Higgins adds that the Cupertino company has hired former engineers of Panasonic, Johnson Controls, LG Chem, A123 Systems and others.
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The iPhone maker’s aggressive hiring shows its seriousness about the electric car market. It already has a presence on the car dashboard with its CarPlay. The electric car market is still in its infancy. It makes up less than 5% of the U.S. automobile market. According to Charles Fleming of the Los Angeles Times, sales of electric vehicles actually declined in 2014 compared to the previous year.
Goldman Sachs said in a research note Thursday that the real market for Apple would be connected cars. Though connected cars make up less than 10% of auto sales today, their share is expected to skyrocket to 80% by 2020. Separately, Barclays said in a research note that the electric car market is worth $16 billion a year, and will grow to $71 billion by 2021. That will still be a small market for Apple considering the global auto market stands at $2.2 trillion.
Apple likely to target the connected car market
Besides, Goldman Sachs said that autonomous driving will become a reality by 2020. Reuters has learned from industry sources that Apple’s secret project involves self-driving electric cars. Given that the EV market is expected to remain small in 2020, it makes little sense for Apple to go only after Tesla. The Cupertino company may challenge Ford, Mercedes-Benz, General Motors and other giants alongside Tesla.
The connected car market is gathering steam as all major automakers are trying to push more apps into their cars. Mercedes-Benz has won the ‘Connected Car of the Year‘ award. With over $6 billion in R&D budget, Apple may challenge well-established automakers. And its premium brand should help the company expand its network and sell more vehicles.
However, even a juggernaut like Apple is not without challenges. The iPhone maker has little experience in automobile development, where companies face a lot of issues from regulatory hurdles to lining up dozens of component suppliers. But Apple has proved its supply chain mettle in the mobile industry, which, just like the auto industry, uses global supply chain. So, it shouldn’t have much trouble managing the new auto supply chain.
Apple has plenty of room for innovation in car market
For decades, there has been little innovation in the car market. The basic design of cars has remained unchanged for more than five decades. Most of the innovation has come from the refinement or regulation. So, there is plenty of room for an innovative player like Apple to come up with game-changing ideas and disrupt the industry, says Barry Randall of MarketWatch.
While Apple’s electric car project has garnered interest from all corners, investors may be worried. That’s because investors love the 35%-plus gross margins on iPhones, while most automakers operate on single-digit margins. But a look at the big picture suggests that the Cupertino company is trying to serve all aspects of a user’s life and keep them tied to the Apple ecosystem.
Apple’s foray into the auto sector follows a similar path the tech giant has taken in other industries. Apple was not the first to make digital music players or smartphones. But it can successfully identify the areas of consumer demand where competing products face limitations and disrupt that market with its innovative products.
Apple’s plan for world dominance
Apple is the most valuable company in the world with over $740 billion in market value. It has already launched a payment platform. The company’s ambitious plans for the smartwatch market, potential plunge into the action camera segment, and the recent reports of self-driving electric cars appear like a blueprint for world domination.
These markets have immense potential, but are still largely grounded. Apple is patiently learning from the missteps of others. Separately, angel investor and serial entrepreneur Jason Calacanis recently predicted that the Cupertino company would acquire Tesla for about $75 billion by 2016. That’s more than three times the current valuation of Tesla.
However, Calacanis’ prediction makes little sense. Apple has always been conservative in its acquisition strategy. Its biggest ever purchase was Beats Electronics for $3 billion last year. A detailed calculation shows that it cost Elon Musk a little over $3 billion in R&D and capital expenditure to take Tesla to where it is today. Even if Apple had to spend three times more than what Elon Musk did to build its car business, it would cost less than 40% the current valuation of Tesla.