Apple Car could bolster services but low margins limit upside, analyst says

Posted:
in General Discussion
Goldman Sachs believes that an "Apple Car" makes sense as a services-supporting hardware platform, but notes that the high costs of releasing a car could mean a limited impact for investors.

Credit: Apple
Credit: Apple


In a note to investors seen by AppleInsider, analyst Rod Hall writes that Apple is "well positioned" to design and sell a vehicle because of its strong hardware and software development and integration. His analysis comes on the heels of a Reuters report that Apple is planning to produce an electric vehicle by 2024.

The company's experience with both battery technology and power management gives it an advantage, Hall writes. Of course, though Apple may be well-positioned to optimize electric vehicular efficiency and architecture, the analyst notes that battery technology breakthroughs have been historically elusive.

Similarly, Apple's experience in LiDAR sensors -- seen on its iPhone 12 Pro and iPad Pro models -- could be a boon to electric car development. However, Hall points out that other automakers are already active testing LiDAR, and by 2024, will likely be using such systems in their vehicles.

Apple does have the unique potential to deliver a "seamless user experience" in a vehicle, thanks to its ability to develop custom silicon that can be deeply integrated with its software.

On the other hand, the auto industry has generally lower gross margins than Apple's own current businesses. Tesla's gross margins are about 20%, compared to Apple's 40%. Operating margins are even lower, typically in the high single digits.

Because of the "poor economics relative to Apple's existing business and other possible options for providing Apple's services in automobiles," Hall notes that the Cupertino tech giant may explore alternate means to provide a seamless user experience without producing an actual electric vehicle.

Even in optimistic scenarios, the release of a production "Apple Car" is likely to have only a minor impact on Apple's bottom line.

Hall uses one potential scenario as an example. He assumes a 5% unit share in the EV market in 2025; an average selling price (ASP) of $75,000; and an earnings before interest and taxes (EBIT) margin of 7%. Based on that scenario, Hall's calculations would see EBIT and earnings-per-share accretion of just 3%.

"Given the potentially low profit opportunity for Apple, a key question in our opinion is why Apple is attracted to autos," Hall writes.

The main reason, Hall then contends, is the amount of time consumers are likely to spend in self-driving vehicles using information services. Given Apple's continuing push to bolster its services business and add services to hardware, adding cars as an additional hardware platform "might make sense."

Despite that, the analyst says Apple may decide to take those aforementioned alternate options because of the low margins. He uses the TV hardware space as an example. In that market, Apple provides a user experience with its set-top box instead of a full-fledged television unit.

Another option could be the evolution of the "car as a service" model, which Apple could then take advantage of in a similar way.

"We understand that a car is a different type of platform, but we wonder if these platforms might evolve to allow Apple to participate in a different way which provides a lot of the platform position benefits without the potential negative financial implications of competing in the lower margin auto hardware arena," Hall writes.
«1

Comments

  • Reply 1 of 32
    Apple wouldn't spend nearly a decade and billions of dollars developing a car unless they think they can get Apple-like margins on it. To think they would bring it out as a near-loss-leader for services is an opinion that could only be held by someone who does not really understand Apple. If the car arrives, it will likely have features so appealing that Apple will be able to charge a premium price with high margins, even it it's built by someone else (like most their other high-margin other consumer products).
    razorpitMacPron2itivguy
  • Reply 2 of 32
    Tired arguments heard before no margin or money in cell phone.  No margins in  software or retailing.  Somehow I believe Apple has insights into human behavior that gives them an edge or analysts that see one way to interpret a changing and dynamic world.  As I have for 40 years I’ll continue to follow buy products and shares in Apple and experience area after area of my life be transformed by what is no longer a handful of gift minds but an entire army marching towards a distant target others can’t make out 
    razorpitfastasleepwatto_cobraRayz2016
  • Reply 3 of 32
    Apple isn't so much interested in the typical auto sales transaction.  Its all about the opportunity for providing a subscription to a self-driving platform.  You'll pay x amount per month for the ability to summon an Apple car to pick you up at your front door.
    MacPro
  • Reply 4 of 32
    The Apple Cars are Robo-Taxis (TaxiPods) containing Apple supported "pieces" as add-ons to an autonomous driving vehicle. The vehicle is probably already selected for the initial run in an exclusive deal Apple made with the car manufacturer. The vehicle will have all of the Apple Toys you could think to throw in the car but you'll pay for each service. You want excellent music, click here. You want to watch television, click here. Personally, I'm most excited about the LCD windshields surrounding the car. "Siri, tint the glass 40%. Siri, block all sunlight coming into the car. Siri, show us driving through the countryside in North Carolina in the Fall. Siri, fly us to the Moon."
    You won't want to get out of this car and it won't be yours.
  • Reply 5 of 32
    rikipedia said:
    The Apple Cars are Robo-Taxis (TaxiPods) containing Apple supported "pieces" as add-ons to an autonomous driving vehicle. The vehicle is probably already selected for the initial run in an exclusive deal Apple made with the car manufacturer. The vehicle will have all of the Apple Toys you could think to throw in the car but you'll pay for each service. You want excellent music, click here. You want to watch television, click here. Personally, I'm most excited about the LCD windshields surrounding the car. "Siri, tint the glass 40%. Siri, block all sunlight coming into the car. Siri, show us driving through the countryside in North Carolina in the Fall. Siri, fly us to the Moon."
    You won't want to get out of this car and it won't be yours.
    Well, let's hope by that time Siri finally starts listening. Or at at least stops saying with everything you ask, like opening Maps or finding a new route: 'Sorry, can't do that while you're driving' 
    razorpit
  • Reply 6 of 32
    scopie said:
    Apple wouldn't spend nearly a decade and billions of dollars developing a car unless they think they can get Apple-like margins on it. To think they would bring it out as a near-loss-leader for services is an opinion that could only be held by someone who does not really understand Apple. If the car arrives, it will likely have features so appealing that Apple will be able to charge a premium price with high margins, even it it's built by someone else (like most their other high-margin other consumer products).

    Ah, Apple will just make us buy a car every 2-3 years......new features not available on older models...……..      I kid, I kid......maybe......
    bulk001
  • Reply 7 of 32
    Typical Cost to Market for a new car design is aprox $1-2 billion..   for Apple that is not a huge number or a big risk by any means ( they paid 3 billion for Beats) .... add on top all the collateral knowledge/ IP Value  gain Apple will benefit/enjoy... which in turn can be applied to other products as well. 
    razorpit
  • Reply 8 of 32
    wood1208wood1208 Posts: 2,543member
    Whether Apple makes iPhone,MAC, Car or Rocket; at the end of the day. it is all about vertical integration and Apple eco system.
  • Reply 9 of 32
    eriamjheriamjh Posts: 1,341member
    I don’t believe the Apple Car rumors at all.   It makes no sense.   It costs $10-15 billion to launch a car company.   

    Apple must be planning something different.  Something we haven’t thought of as of yet.  That’s how they do.
    MisterKit
  • Reply 10 of 32
    Lots of chatter about an Apple Car from different sources - someone has said something.
    edited December 2020
  • Reply 11 of 32
    MplsPMplsP Posts: 3,251member
    Bombdoe said:
    Lots of chatter about an Apple Car from different sources - someone has said something.
    All this for something that no one is really sure exists
  • Reply 12 of 32
    razorpitrazorpit Posts: 1,796member
    eriamjh said:
    I don’t believe the Apple Car rumors at all.   It makes no sense.   It costs $10-15 billion to launch a car company.   

    Apple must be planning something different.  Something we haven’t thought of as of yet.  That’s how they do.
    You do realize they spent $3 billion on a company that made headphones. You're talking about money they have in between their couch cushions. (Yes, it's a big couch.)

    watto_cobra
  • Reply 13 of 32
    robabarobaba Posts: 159member
    schmrtzzz said:
    rikipedia said:
    The Apple Cars are Robo-Taxis (TaxiPods) containing Apple supported "pieces" as add-ons to an autonomous driving vehicle. The vehicle is probably already selected for the initial run in an exclusive deal Apple made with the car manufacturer. The vehicle will have all of the Apple Toys you could think to throw in the car but you'll pay for each service. You want excellent music, click here. You want to watch television, click here. Personally, I'm most excited about the LCD windshields surrounding the car. "Siri, tint the glass 40%. Siri, block all sunlight coming into the car. Siri, show us driving through the countryside in North Carolina in the Fall. Siri, fly us to the Moon."
    You won't want to get out of this car and it won't be yours.
    Well, let's hope by that time Siri finally starts listening. Or at at least stops saying with everything you ask, like opening Maps or finding a new route: 'Sorry, can't do that while you're driving' 
    That’s what your watch will be for.  Listen, I’m not sold on the idea of Apple making self driving cars into a service, but if they did it would have to be Siri centric.  And they’ve just upgraded their neural engines in their wearables to process requests from the nearest device.  Hard to get closer than your wrist.  Not only that, but each device is trainable to better understand your speech patterns so we would assume your watch will have a clearer understanding of your needs that a Car Siri you just met.  

    That said I still maintain it will be a sale rather than service.  Apple doesn’t want to be hosing out the interior of a fleet of Cars New Year’s Eve, am I right?
    watto_cobra
  • Reply 14 of 32
    schmrtzzz said:
    rikipedia said:
    The Apple Cars are Robo-Taxis (TaxiPods) containing Apple supported "pieces" as add-ons to an autonomous driving vehicle. The vehicle is probably already selected for the initial run in an exclusive deal Apple made with the car manufacturer. The vehicle will have all of the Apple Toys you could think to throw in the car but you'll pay for each service. You want excellent music, click here. You want to watch television, click here. Personally, I'm most excited about the LCD windshields surrounding the car. "Siri, tint the glass 40%. Siri, block all sunlight coming into the car. Siri, show us driving through the countryside in North Carolina in the Fall. Siri, fly us to the Moon."
    You won't want to get out of this car and it won't be yours.
    Well, let's hope by that time Siri finally starts listening. Or at at least stops saying with everything you ask, like opening Maps or finding a new route: 'Sorry, can't do that while you're driving' 
    Or you could just turn that feature off, it's in Settings. Duh.
    watto_cobra
  • Reply 15 of 32

    eriamjh said:
    I don’t believe the Apple Car rumors at all.   It makes no sense.   It costs $10-15 billion to launch a car company.   

    Apple must be planning something different.  Something we haven’t thought of as of yet.  That’s how they do.
    Are you completely oblivious to Apple's current cash pile? They literally can't spend their money fast enough to keep it down.
    watto_cobra
  • Reply 16 of 32

    MplsP said:
    Bombdoe said:
    Lots of chatter about an Apple Car from different sources - someone has said something.
    All this for something that no one is really sure exists
    You'd have to be an abject moron if you think this project doesn't exist based on all the evidence we have seen. Like lists of actual humans with automotive jobs working there. How many patents at this point covering every aspect of an automotive system. Etc. 
    MacProwatto_cobra
  • Reply 17 of 32
    It's fucking hilarious to me the number of doubters on these posts are seemingly increasing over time when we have more and more evidence that it's a real thing that's happening, for five plus years now. TONS of detailed evidence from staffing to high-level leadership changes to property ownership to patents from everything from suspension systems to 3d AI object detection to window tinting to door design. It's a fucking Apple vehicle in serious development, people.

    Cue Jobs on the iPhone launch soundbite: "Are you getting it?"
    edited December 2020 MacProwatto_cobra
  • Reply 18 of 32
    MacProMacPro Posts: 19,380member
    I totally understand all the doubters, Sachs included.  After all, Apple has never entered a mature market they had no experience in and completely annihilated all existing companies, say... like selling software, music,  phones, tablets, earbuds, watches, or CPUs and GPUs.  What are we thinking to believe Apple could turn the automotive industry upside down?  How could they possibly afford the billions it would take?  Come on guys get real ;)
    edited December 2020
  • Reply 19 of 32
    and what is someone supposed to do in a self driving car, sit and watch? The only utility I see is if you are drunk out of your head, but then again unless someone tells you so you are going to want to drive anyway, sad but true. 
  • Reply 20 of 32
    MacProMacPro Posts: 19,380member
    joefrank said:
    and what is someone supposed to do in a self driving car, sit and watch? The only utility I see is if you are drunk out of your head, but then again unless someone tells you so you are going to want to drive anyway, sad but true. 
    If you live in a densely populated city not owning a car is probably quite a good idea.  My humble guess is Apple could initially be targeting taxis and Uber with a fleet of cute, futuristic Cars that are part of the Apple ecosystem and use Biometric entry security.  Summoned via iPhone and paid with Card. The cars would be owned by Apple, I've suggested a new division called ClarisCars. I am also predicting they will seat six, front and back seats can face both ways (a clever folding design) as Car will be able to drive in either direction and have all four wheels able to turn. They will be designed for short hauls only in the first year or two. You will book Car via Apple Maps adaptation... "I'm sorry that journey is not selectable as it is beyond the Car range".  They will be white, black and of course red.

    No car payments, no depreciation, and 3% on Card rental fees, annual contracts available, and family plans too.
    edited December 2020 joefrankroundaboutnowRayz2016
Sign In or Register to comment.