The rumor mill is churning again. According to Reuters, Apple could be on the brink of striking a deal for the manufacturing of batteries that would equip the long-awaited Apple Car. The potential suppliers would allegedly be Chinese manufacturers CATL and BYD.
With each leak reported about the Apple Car, it becomes increasingly more likely that the Cupertino company will eventually enter the automotive space. The markets seem to like it: notice below how Apple stock price spiked in early trading, on June 8, most likely a reaction to Reuters’ report.
Overview of the Apple Car opportunity
Rumors about the potential launch of a driverless Apple Car have been surfacing for the past 7 years at least. “Titan”, started in 2014, was the company’s original electric car project. It put in motion a fully autonomous vehicle idea originally envisioned by founder Steve Jobs himself.
Starting in 2016, however, several engineers who had been working on Project Titan left the company. It was probably not until Apple’s acquisition of Drive.ai, in 2019, that the Cupertino company began working towards fulfilling its autonomous vehicle ambitions once again.
In December 2020, Reuters released what was likely the most convincing piece of evidence at the time that the speculated Apple Car would likely see the light of day by 2025. The report unveiled quite a bit of detail about Apple’s plans, including:
- Target market: mass market consumers, rather than the autonomous ride-hailing service ideas pursued by the likes of Alphabet (GOOG) and Uber (UBER);
- Power source: internally developed monocell battery, possibly lithium iron phosphate, designed to be cheaper and hold charge for longer;
- Manufacturing model: Apple was likely to rely on a partner assembler, rather than to build manufacturing capacity from scratch;
- Timeline: while the electric vehicle was scheduled to be released in 2024, pandemic-related disruptions to the supply chain could delay the launch by one year.
In February 2021, Apple raised large quantities of cash through debt issuance. While the move could be justified merely by the opportunity to capitalize in a lower interest rate environment, the Apple Maven speculated that the liquidity might be needed to finance a large expansion project, like the Apple Car.
(Read more from the Apple Maven: 3 Key Takeaways From WWDC 2021)
Apple Car: bullish or bearish?
With the likelihood of an Apple Car launch being high, at least in my opinion, one of the key questions is how this product launch will impact the value of Apple stock.
The market has taken the bullish side. Whenever news about the Apple Car surfaces, AAPL price seems to rally. It happened on June 8, but also immediately after Reuters’ December 2020 report. Back then, Apple shares gained $140 billion in value within the hour following the leak.
The market’s reactions seem aligned with the idea that autonomous vehicles can be a significant source of growth for Apple – especially once tech devices like smartphones and tablets enter their maturing and declining life cycles. The stock of a growth company tends to command higher valuation multiples.
Taking the bearish side are a couple of Wall Street analysts. Old time bear-turned-neutral Rod Hall, from Goldman Sachs, offered the following take on the Apple Car opportunity:
“The auto industry has generally lower gross margins than Apple’s own current businesses. Tesla’s (TSLA) gross margins are about 20%, compared to Apple’s 40%. Operating margins are even lower, typically in the high single digits. Even in optimistic scenarios, the release of a production Apple Car is likely to have only a minor impact on Apple’s bottom line.”
(Read more from the Apple Maven: Apple Stock Is Ripe For A Rally. Here’s Why)
News about the speculated Apple Car, when it surfaces, tends to send Apple stock price higher. Do you think the market is right? Would an Apple Car add substantial value to the Cupertino company’s equity? Leave your vote below and follow @AppleMaven on Twitter!
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(Disclaimers: this is not investment advice. The author may be long one or more stocks mentioned in this report. Also, the article may contain affiliate links. These partnerships do not influence editorial content. Thanks for supporting The Apple Maven)