Apple’s long flirtation with the car business divides analysts, who see pros and cons

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.

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.

But the biggest question among analysts is how Apple would monetize its car project. One option is through selling Apple-branded cars itself. Other possibilities include selling related mobility services, or licensing software to traditional automakers, as the Reuters report suggested.

Morgan Stanley analysts suggested that Apple could sell some kind of transportation subscription, not by competing with traditional automotive companies that sell cars.

“It’s not that we believe Apple wants to get into the auto industry as conceived by today’s auto companies,” the Morgan Stanley analysts wrote. Instead, they think that Apple may be aiming to build a better car experience using its design and software chops, and could monetize it through its current matrix of subscription and services products.

Longtime Apple analyst and Loup Ventures founder Gene Munster wrote on Monday that Apple’s car business has two possible paths: Building an Apple-branded car, or building licensable software for other automakers, but he notes that that option would allow vehicle look-and-feel to be in the hands of other companies. That would be out of character for the iPhone maker, which prizes control.

He believes Apple hasn’t made up its mind yet which way to go but suggests that an Apple-branded car is more in line with the company’s past moves.

“This is Apple’s wheelhouse: find a big market that a competitor has already made progress in, enter the market a few years later, and revolutionize it,” Munster wrote.