Top Apple analyst wants to know why Apple wants to be in the car business
Toni Sacconaghi, Bernstein analyst, on Apple's long-rumored 'possible' entry into the car business. With CNBC's Melissa Lee and the Fast Money traders, Guy Adami, Tim Seymour, Dan Nathan and James McDonald. Subscribe to CNBC PRO for access to investor and analyst insights on Apple and more: https://cnb.cx/3dIH56N
Wall Street analysts had a range of reactions to a Reuters report on Monday that Apple could start production of an electric car in 2024 based around new internally developed battery technology. The report rekindles talk of Apple entering the car business, which was first reported in 2015. Apple has never commented on the reports.
While some analysts see the automotive business as a large new market for Apple to grow into, others say that the reported plan to make an Apple-branded car could run into the reality of the car business: heavy investment for low margins.
Reasons for doubt
Apple’s current business is based around selling premium computers, phones, and accessories. Cars are a lower margin business, a different sector than Apple’s traditional strength, and it takes a lot of investment to successfully manufacture a car.
Other analysts still see the car as a research project and not as actual product development.
“Apple conducts R&D in many areas, and while we are not surprised to hear the media once again discuss Project Titan for autos, we are very skeptical that Apple will actually produce a car, as auto sector profitability is much lower,” Citi analyst Jim Suva wrote in a note.
Evercore analyst Amit Daryanani also doubts Apple would enter the low-margin, capital-intensive car business. But he suggested that if the company had successfully invented a breakthrough in battery or self-driving technology, it could make the project worthwhile.
Reasons to believe
Other analysts were more bullish on Apple entering the car market. Apple investors have clamored for a major new product category as sales of iPhones, the company’s biggest business, have not been growing consistently over the past few years. Some analysts pointed to the huge market for cars, as well as the time spent in them.
Morgan Stanley analysts said that companies like Apple want to break into the automotive industry not just for the money that can be made selling cars and parts, but also because people riding in automobiles are a captive audience whose time could be monetized. The team led by Adam Jonas and Katy Huberty cited an estimate that there are over 600 billion hours of time spent in cars per year.
Tesla’s meteoric stock price rise -- it’s up more than 600% this year -- has analysts seeing parallels to Elon Musk’s electric car company, too.
Baird analyst William Power wrote in a Tuesday note that cars are a multi-trillion dollar market, a “massive long-term global opportunity,” and cited the firm’s forecast that Tesla’s revenue could grow 40% this year to $42.2 billion, suggesting a possible outcome for an Apple-branded car. (Apple reported revenue of $274.51 billion in its fiscal 2020, with gross margins around 38%.)
Apple is also one of a very small number of companies that has the resources to break into the car market, analysts suggested, with its massive reserves of cash and ability to recruit top technical talent. Apple could also benefit from a shift in the automotive industry where computers and software are becoming more important to selling cars, allowing it to emphasize its strengths in hardware and software design, analysts said.
“Vehicles are rapidly becoming ‘computers on wheels,’ so Apple’s background software/silicon/electronics could be useful if it partners with a company like Magna,” a contract automotive manufacturer, Daryanani wrote.
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Видео Top Apple analyst wants to know why Apple wants to be in the car business канала CNBC Television
Wall Street analysts had a range of reactions to a Reuters report on Monday that Apple could start production of an electric car in 2024 based around new internally developed battery technology. The report rekindles talk of Apple entering the car business, which was first reported in 2015. Apple has never commented on the reports.
While some analysts see the automotive business as a large new market for Apple to grow into, others say that the reported plan to make an Apple-branded car could run into the reality of the car business: heavy investment for low margins.
Reasons for doubt
Apple’s current business is based around selling premium computers, phones, and accessories. Cars are a lower margin business, a different sector than Apple’s traditional strength, and it takes a lot of investment to successfully manufacture a car.
Other analysts still see the car as a research project and not as actual product development.
“Apple conducts R&D in many areas, and while we are not surprised to hear the media once again discuss Project Titan for autos, we are very skeptical that Apple will actually produce a car, as auto sector profitability is much lower,” Citi analyst Jim Suva wrote in a note.
Evercore analyst Amit Daryanani also doubts Apple would enter the low-margin, capital-intensive car business. But he suggested that if the company had successfully invented a breakthrough in battery or self-driving technology, it could make the project worthwhile.
Reasons to believe
Other analysts were more bullish on Apple entering the car market. Apple investors have clamored for a major new product category as sales of iPhones, the company’s biggest business, have not been growing consistently over the past few years. Some analysts pointed to the huge market for cars, as well as the time spent in them.
Morgan Stanley analysts said that companies like Apple want to break into the automotive industry not just for the money that can be made selling cars and parts, but also because people riding in automobiles are a captive audience whose time could be monetized. The team led by Adam Jonas and Katy Huberty cited an estimate that there are over 600 billion hours of time spent in cars per year.
Tesla’s meteoric stock price rise -- it’s up more than 600% this year -- has analysts seeing parallels to Elon Musk’s electric car company, too.
Baird analyst William Power wrote in a Tuesday note that cars are a multi-trillion dollar market, a “massive long-term global opportunity,” and cited the firm’s forecast that Tesla’s revenue could grow 40% this year to $42.2 billion, suggesting a possible outcome for an Apple-branded car. (Apple reported revenue of $274.51 billion in its fiscal 2020, with gross margins around 38%.)
Apple is also one of a very small number of companies that has the resources to break into the car market, analysts suggested, with its massive reserves of cash and ability to recruit top technical talent. Apple could also benefit from a shift in the automotive industry where computers and software are becoming more important to selling cars, allowing it to emphasize its strengths in hardware and software design, analysts said.
“Vehicles are rapidly becoming ‘computers on wheels,’ so Apple’s background software/silicon/electronics could be useful if it partners with a company like Magna,” a contract automotive manufacturer, Daryanani wrote.
» Subscribe to CNBC TV: https://cnb.cx/SubscribeCNBCtelevision
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Turn to CNBC TV for the latest stock market news and analysis. From market futures to live price updates CNBC is the leader in business news worldwide.
The News with Shepard Smith is CNBC’s daily news podcast providing deep, non-partisan coverage and perspective on the day’s most important stories. Available to listen by 8:30pm ET / 5:30pm PT daily beginning September 30: https://www.cnbc.com/2020/09/29/the-news-with-shepard-smith-podcast.html?__source=youtube%7Cshepsmith%7Cpodcast
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