Morgan Stanley explains that Apple’s interest in entering the electric car industry is likely its desire to “enhance the driving experience with vertical integration of hardware, software, and services.” At the same time, the company also gets to enter a “large, fast-growing industry” where it can “dramatically improve the user experience.”
The analysts also believe that the opportunity for additional Services revenue offered by the car industry could outweigh the auto business itself:
Tesla stock dropped swiftly following news of Apple’s revitalized car efforts yesterday, and Morgan Stanley anticipates that Apple represents significant competition for the current leading EV maker. The analysts explain that tech players such as Apple “represent far more formidable competition” to Tesla than traditional automakers.
Apple possesses the key ingredients that we believe are critical to be successful in the future auto industry: Access to capital, an ability to attract and retain top talent, proven hardware design (from HMI to battery), and a rich ecosystem to leverage recurring subscription/service revenue. We believe the value of the services opportunity (MAU x ARPU) embedded in Internet-of-Cars (IoC) could potentially dwarf the auto business itself (units x price).
Apple is also uniquely positioned, the report says, to “bring forward new innovation in autonomy and renewable tech” than legacy automakers.
Finally, on the timeline suggested by yesterday’s Reuters report, Morgan Stanley says that Apple also already heavily invested in core technologies that could aid in the development of a car:
Reuters anticipates that Apple Car production could begin in 2024, but that pandemic-related delays “could push the start of production into 2025 or beyond.” Read our full coverage of the report here.
Importantly, Apple has recently invested to bring five core technologies in-house, which can aid their car development — processors, battery, camera, sensors, and display. They believe there are other growth drivers like AR, payments, and health that are likely to roll out sooner, making a 4+ year time horizon appear realistic.
