Stocks

Apple Inc. Outspending Major Automakers on R&D By 20 Times

The idea of an Apple car continues to sit well with Wall Street and fans alike, and more and more signs suggest that the iPhone maker is indeed heading in this direction. One analyst said recently that the company has been quickly ramping research and development costs and has yet to release any major new product, concluding that a car must be the product that’s being worked on. Now we have more Apple car-related news.

Morgan Stanley analysts actually believe the company is more interested in shared mobility than in selling a car, and they note that it is now spending 20 times more on research and development in the than leading automakers are spending. There’s also a report that the company is exploring building its own charging stations. Sound a lot like Tesla? Well, this wouldn’t be the first time Apple ripped off an idea from another company and made it even more popular than the original product in its category.

Apple’s spending in shared mobility

Morgan Stanley analyst Katy Huberty and team said in a report dated May 25 that shared mobility is “the most likely explanation” for the company’s increased R&D spending. For one thing, they estimate the opportunity in this area to be about $2.6 trillion per year based on the 20 trillion miles that are expected to be traveled in 2030 with 26% shared automobile penetration at 50 cents per mile. Additionally, they see three “disruptive forces” meeting in shared mobility, which are electric, autonomous and shared vehicles.

Third, they think the digital experience inside of vehicles must be improved and note that technology cycles are moving faster now with an average of one to two years at most, compared to auto design cycles lasting five to seven years. They also note that the investment into Chinese ride-sharing service Didi Chuxing shows that the iPhone maker is interested in shared mobility specifically. The Morgan Stanley team believes that Apple sees shared vehicles as offering a recurring revenue stream “at maturity” rather than owned vehicles.

Apple outspending other automakers

The Morgan Stanley team states that over the last three years, the iPhone maker has spent an incremental $5 billion on R&D, probably for products that haven’t been launched yet. This is much more than it spent before the Watch ($2 billion incrementally) and the iPhone and iPad. Huberty and team add that R&D expenses grew 80% compared to the 37% increase in revenue over the last two years. Further, Apple spent 3.5% of its revenue on R&D in fiscal 2015, which is more than the 3.2% of revenue it spent in 2007 when it launched the iPhone, even though it now has almost ten times the revenue scale it had at that time.

2

They add that the $5 billion in incremental R&D spend at Apple compares to the total of $192 million at the top 14 automakers and that over 100% of that was spent at Tesla.

1

They estimate that Apple could get at least a 16% share of the shared mobility market, which is about the same percentage share it holds in smartphones. This would amount to more than $400 billion in revenue and earnings of $16 per share in 2030, which is more than the company currently generates right now.

Apple said to be exploring charging stations

But Apple may have much more in mind than shared mobility. As more and more rumors about an Apple car roll in, it’s sounding like there could indeed be one in the works, and now Reuters is reporting that Apple is looking into how to charge electric cars. Citing unnamed sources and some LinkedIn profiles, the media outlet reports that the company has been talking with companies that operate charging stations about their technology. It also states that the talks were not about charging for electric cars owned by the iPhone maker’s employees, which it already provides.

Reuters’ source reportedly said charging companies are wary of sharing too much information about their technology with Apple, which could become a rival. The media outlet said it’s not clear whether the iPhone maker would want to build its own charging infrastructure like what Tesla is building or whether it would want to build one that would be compatible with cars made by other companies.

Apple shares climbed by as much as 1.8% to $99.66 during regular trading hours on Wednesday.