Will the ‘Apple Car’ change the EV market?
Morgan Stanley analysts said that investors are likely to underestimate the impact Apple may have on the market, despite rumors that Apple is building up its “Apple Car” manufacturing capability with Kia.
A trio of analysts from Morgan Stanley’s Asia Pacific Car, U.S. IT Hardware, and the U.S. In a letter to investors viewed by AppleInsider, Cars and mobility teams shared their opinions on the recent news that Apple is spending billions in Kia to produce its self-driving vehicle.
Apple has a tradition of financing the build-out of production capabilities for new goods, analyst Katy Huberty says. Apple invested less than $1 billion annually on capital investment when the iPhone was launched. A decade later, the figure is $12 billion today, with industrial machinery being the biggest share.
Huberty also states that the financial influence of Apple joining the market for electric vehicles is likely to be overlooked by analysts. She points out the impact of Apple as it hits other markets on addressable opportunities.
The iPod shipped more than three times the annual peak units of its predecessor as it reached maturity. Smartphones reached their highest potential market share less than a decade after the iPhone debuted. Apple Watch sales already outweigh the whole Swiss watch industry as of 2021
“In other words, in the future,” Huberty writes, “adding a market share figure to the existing EV market projection is likely to massively underestimate the scale of Apple’s car company.”
She also holds her stance that, because of the mixture of hardware, software, and services and the fact that it might provide a smoother experience, Apple is joining the automotive business.
“We think that with the same vertical integration that it leverages in other markets, Apple can approach the market,” she says.
Young-Suk Shin, an Asia Pacific Car analyst, added that if rumors of Apple investing in Kia are real, the Cupertino tech giant is essentially pushing its own money into capital investments while Kia is producing.
“It can be seen as a safer choice from that angle, but we don’t think this affects the thesis that Kia ends up as an outsourcing company. For now,” the analyst said, “the Apple halo-effect/sentiment is overtaking outsourcing issues.”
Morgan Stanley’s auto team’s Adam Jones says he doesn’t think consumers are primed for the second-order consequences of an Apple entry into the domain of e-mobility and internet-of-cars.
“We assume that contemplating an entrance into the car industry by Apple would extend investor thinking about the position of the network, including the business model of recurring, software-enabled platform sales (installed base, attach cost, ARPU priced at multiple SaaS),” writes Jones.
Jones claims, like Huberty, that an “Apple Car” could broaden the wider demand for electric cars significantly. The existing 31 percent EV penetration estimate by Jones for 2030 would not take the Apple self-driving car into account.
Her 12-month AAPL price target of $164 is set by Huberty. It is based on a sum-of-the-parts model with a multiple enterprise value-to-sales (EV/Sales) of 6x on the goods company of Apple and a multiple EV/Sales of 13.1x on services. This results in an implied multiple of 7.5x target 2022 EV/Sales and a multiple of 34x target business value to free cash flow.
I don’t know whether you’ve been paying attention — I’m not going to fault you for being too lazy to care for you — but during the last few days, a whole bunch of coverage has fallen on Apple Vehicles. And if you’ve already noticed any confidence you’ve missed, buckle up, buddy. The rumors are only going to flow from here on out quicker and faster.
First, the Korean newspaper DongA Ilbo, via Automotive News, announced that Apple intended to spend $3.6 billion in Kia, which is expected to manufacture the long-awaited Apple Car at its plant in West Point, Ga. MacRumors then posted a note from Ming-Chi Kuo, a decently accurate Apple analyst who derives his expertise from the supply chain of the brand, suggesting that the Apple Car will use the E-GMP platform from Hyundai. And eventually, CNBCadded yesterday that Apple’s first vehicle isn’t going to be built to have a pilot.
Now, the consequences of these reports are relevant and seem to come from credible outlets (for the most part, anyway; I can’t talk about the reputation of DongA Ilbo.) It makes perfect sense for Apple to use the E-GMP architecture that will support the Hyundai Ioniq 5 along with several other models because that’s the part of this equation for which you’d expect Apple to rely on Hyundai. In his latest note, Kuo basically said as much:
Apple’s deep partnership with established automakers (Hyundai Group, GM, and PSA) with substantial expertise in production, manufacturing, and certification would dramatically shorten the development period of the Apple Car and produce a time-to-market advantage. We expect that Apple will harness the expertise of current automakers and concentrate on self-driving hardware and software, semiconductors, battery-related technology, prototypes for form factor and internal space, creative user interface, and alignment with the current ecosystem of Apple.
For the part of the car that drives, Hyundai will be liable, so Apple could focus on the intelligence of hardware and software. In a way, when Apple was thought to have given up on full car manufacturing a few years ago, it is simply a predictable creation, turning its emphasis solely to tech. The company will have a home for its technologies with a partner like Kia, however, and the result would be completely Apple-branded. For Apple, it all sounds pretty sweet!
This is, of course, where the frequently noted ambivalence of Hyundai about the project comes in. The Korean car producer is terrified — wouldn’t you be if you were dealing with the most successful brand in the world? And, as CNBC says, there just wouldn’t be much room on this thing for a Kia logo anywhere:
Sources familiar with the involvement of Apple in partnering with Hyundai claim that the tech giant wants to create an existing automaker in North America with the “Apple Car” ready to allow Apple to manage the software and hardware that will reach the vehicle.
This would be an “Apple Car,” in other words, not a Kia brand of Apple tech.
Brief history aside: Apple sold a Motorola-produced phone with iTunes apps built-in, called the Rokr E1, years before the iPhone. The thing flopped so poorly until I brought it up, you probably didn’t remember it. The next Motorola doesn’t want to be Hyundai.
The article by CNBC also sheds light on the essence of the Apple Car, which does not seem to be a consumer-targeted product, at least at the beginning:
The first Apple Vehicles, said one person with knowledge of the current plan, would not be designed to have a pilot. It would be automated, hybrid cars designed for the last mile and designed to run without a driver. At least initially, this could mean that Apple cars could concentrate on package food distribution operations and robotaxi-integrated businesses.
In other words, in specified places, the Apple Car program will start more along the lines of Google’s Waymo, primarily designed for public transport. Nevertheless, with Kuo’s prediction that Apple will sell the car as “a very high-end model” this does not completely click — maybe Kuo points to the future when Apple finally entertains direct-to-consumer sales. If that’s the case, however, it seems like it will be a very, very long time before someone will possibly purchase an Apple Vehicle, way above the Kuo himself expected earliest-case 2025 scenario.
My brain is swirling, trying to make all the rumors make sense. The Apple news loop is endless, and now it’s doing the same to vehicles after decades of dominating technology.