Analysts are bullish on Apple Inc.'s expected foray into the electric vehicle market, noting the company has the right mix of ingenuity and clout to pose a major threat.
Citing sources familiar with the matter, CNBC recently reported that Apple is nearing a deal to make its first electric vehicle in partnership with South Korean automaker Hyundai Motor Co. The company's so-called Apple Car is being developed by a team at Apple and is tentatively scheduled to go into production in 2024, though that date might be pushed back and Apple could ultimately decide on another partner, CNBC said. Shares in Apple rose slightly on the news, though were trading down just under 1% mid-morning Feb. 5, at $136.40 each.
Analysts expect Apple's move into the electric vehicle industry to strengthen the company's competitive position and further its efforts to differentiate itself through vertical integration.
Wedbush Securities analyst Daniel Ives in a Feb. 3 report said he expects Apple's push into the electric vehicle race to add at least $30 per share in total market demand for Apple's entire business over the next few years. He also noted that the burgeoning auto space presents a "trillion dollar opportunity" globally.
Apple's choice to partner with an established automaker rather than build its own vehicles and factories is a smart move, Ives added, given the "Herculean-like auto production capabilities, battery technology ramp, financial model implications, and regulatory hurdles involved in such a game changing initiative."
"In a nutshell, this would only expand the massive [total addressable market] for Apple over time to go aggressively after the EV market," Ives said.
According to the CNBC report, the first Apple Cars will be fully autonomous, meaning they will not be designed to have a driver, and could focus on package food delivery companies and firms that have incorporated driverless taxis, or robotaxis, into their operations. The first few Apple Cars would be manufactured at Kia Corp.'s assembly plant in West Point, Ga., per the report.
The idea of Apple building a car is not new. Though the company remains tight-lipped about such plans, talk of Apple's self-driving car project, dubbed Project Titan, began around 2014. Speaking on an earnings call in 2017, Apple CEO Tim Cook said the company had a "large project going" and was "making a big investment" in the area of autonomous vehicles, though he declined to provide specific details on the initiative.
"In terms of autonomous systems, what we've said is that we are very focused on autonomous systems from a core technology point of view," Cook said. "Autonomous systems can be used in a variety of ways, and a vehicle is only one, but there are many different areas of it."
Apple did not immediately respond to a request for comment about the recent CNBC report or its strategy for an Apple Car.
For her part, Morgan Stanley analyst Katy Huberty noted Apple has a proven ability to transform each market it enters, and cautioned investors against underestimating the financial potential of an Apple Car. For instance, at maturity, Apple's portable iPod media player shipped over 3x annual peak units than its predecessor, the Sony Corp. Walkman; and shipments of its Apple Watch currently exceed that of the entire Swiss watch market, she said.
Current leaders in the electric and autonomous vehicle markets include Tesla Inc. and Alphabet Inc.'s Waymo, respectively.
"Apple is attracted to markets where the combination of hardware, software and services creates a better experience," Huberty wrote in a note. "We believe Apple would approach the market with the same vertical integration it leverages in other markets."
Apple's preference for vertical integration was most recently seen through its decision to begin the two-year process of replacing Intel Corp.'s chips used in Mac computers with its own processors. The move is intended to provide users with greater performance while conserving energy, Apple said.
Apple's emphasis on design and its enviable combination of silicon, software, cameras and neural engines will be a key differentiator for the company as it enters the auto space, Loup Ventures managing partner Gene Munster said.
"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 said.