Apple Car Reports Are No Surprise To Analysts

An Apple car would be essentially an iPhone on wheels

If Apple really is developing a car, there’s no denying that the opportunity is huge. We’ve had plenty of debate about whether the media reports are true, and now analysts are starting to wade into the fray. Unsurprisingly, analysts from multiple firms are voicing their support and saying it’s a move that just makes sense for Apple.


Would an Apple Car be the future iPhone?

In a report dated Feb. 17, Cantor Fitzgerald analysts Brian White and Isabel Zhu suggest that an Apple car would be “the iPhone of the future.” The phrase is a play on something Ford management said last year at the Mobile World Congress when they called cars “the smartphone of the future.”

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Computers have made their way into just about anything you can imagine now, including cars. Apple’s own CarPlay is now available in more than 30 different makes of vehicles. As an extension of the iOS ecosystem, CarPlay already demonstrates Apple’s interest in the automobile industry. As a result, it could make sense for the tech giant to move further into the industry.

Apple Car – How big is the opportunity?

The Cantor Fitzgerald team looked at a number of estimates for the auto industry and used them to weigh in on how much of an opportunity Apple has if it builds a vehicle. HIS Automotive expects light vehicle sales to hit 88.6 million this year, including 25.2 million in China and 16.9 million in the U.S.

The average transaction price, according to Kelley Blue Book, was $32,500 in September. That would mean that the U.S. offers about $549 billion in potential revenue.  If the average transaction price in the U.S. is the same around the globe (although it probably isn’t), the global opportunity would be nearly $2.9 trillion. If taking a 50% discount to the U.S., they estimate a global opportunity of $1.4 trillion.

Of course Apple usually prices its products well above the rest of the market, so the average transaction price on a car made by the company would probably be significantly higher than the U.S. average.

Apple Car – Cars becoming an extension of everything else

In a separate report dated Feb. 17, Barclays analyst Ben Reitzes and his team also said it makes sense for Apple to be building a car. They say the car “is becoming a natural extension of the connected home and mobile ecosystem,” so they believe the move is a logical one following the release of the Apple Watch and plans for an “enhanced living room strategy.”

Additionally, the Barclays team thinks Apple must make a move into the auto maker in order to keep Android from becoming the major player in vehicle operating systems.

Apple Car – Advantages for Apple in the car industry

The Barclays team estimates the global car market at around $2.2 trillion and the all-electric vehicle part of that market making up almost $16 billion. As a result, they think the market is plenty big enough for Apple to consider entering.

They name several advantages Apple would have if it did enter the vehicle market. For example, the company has plenty of cash it could invest in such an endeavor. In addition, as Apple is said to be targeting the electric vehicle market, that segment of the market is still in the early stages. Of course a car made by Apple would naturally go hand in hand with iPhones and iPads and create more opportunities for Apple to create new services.

And then there is the Apple brand, which is a premium brand that can be viewed as being similar to how luxury auto brands are seen by high-end consumers.

Apple Car – Trouble with CarPlay?

Of course there are always risks with entering a new market, and it’s no different in this case. White and Zhu point out that making cars is very capital intensive. Also the car dealership  model is a big hurdle in the industry, as Tesla is finding out the hard way. In addition, they point out that automakers tend to run at much lower margins than Apple is used to, so they say Wall Street will be thinking about how Apple will be able to keep its “profit profile and high returns on invested capital as it enters adjacent opportunities.”

They believe Apple is already seeing some problems in the auto industry with CarPlay, as they think the operating system is progressing slower than Apple would like. They see potential frustrations related to the auto market’s structure and its platforms. Like Tesla, they think Apple would also be frustrated by the traditional structure of the auto market.

As of this writing, shares of Apple were up by 0.36% at $127.45 per share.