Why Is Apple Getting Increasingly Serious About Making Cars?

Apple Inc. AAPL is increasingly “serious” about entering the auto market because even though the smartphone is large, it is dwarfed by the opportunities in transportation, Loup Ventures analyst Gene Munster said Sunday.

What Happened: Munster estimates the smartphone market to be worth $450 billion, a figure Loup Ventures arrived at using 1.4 billion annual unit sales with an average selling price (ASP) of $310.

The analyst estimates the global market for new vehicles, including cars, light trucks, commercial vehicles, and semis to be about $2.8 trillion. 

“While the smartphone market is large, it’s dwarfed by the transportation opportunity,” the analyst said.

“We believe the size of the transportation market is one reason why Apple appears increasingly serious about making a car.”

Why It Matters: Apple’s flagship iPhone brought in $65.6 billion in sales and enjoyed a 17.23% year-over-year growth. The iPhone accounts for 58.86% of total Apple revenues, as per the company’s Q1 earnings.

Munster says based on the previous commentary from Apple CEO Tim Cook, there are three criteria that must be met for Apple to enter a market: vertical integration ability, a massive market, and a profitable market.

The analyst wrote that while vertical integration and massive market conditions are met, profitability is yet to be decided as historically the automotive industry has had “thin operating margins” in the mid-single digits.

The Loup Ventures analyst pointed to Tesla Inc. TSLA and its ambitions of achieving margins in the 20% range.

“We believe software subscriptions for features such as FSD and in-car entertainment, along with a robotaxi fleet, will be necessary,” wrote Munster. The analyst said that if Apple is successful in making an EV it would have “a similar opportunity to augment its vehicle hardware offering with high-margin revenue from software and services.”

1 2
View single page >> |

© 2021 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.

How did you like this article? Let us know so we can better customize your reading experience.

Comments

Leave a comment to automatically be entered into our contest to win a free Echo Show.