Reuters
- Apple’s reported interest in developing and selling its own cars raised eyebrows this week as it would catapult the high-margin iPhone maker into a historically low-margin business.
- Even in an optimistic scenario where Apple sells hundreds of thousands of vehicles, the earnings impact would be minimal, according to a note from Goldman Sachs.
- The real reason why Apple wants exposure to the car business is because of the increased time “consumers are likely to spend in self driving cars using information services as they make their way from point A to point B,” Goldman said.
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Apple’s desire to develop and sell vehicles sent shares surging as much as 6% since Reuters broke the news Monday afternoon.
But Apple’s profit potential in the low-margin car business is minimal, even in optimistic scenarios, Goldman Sachs said in a note on Wednesday. More upbeat scenarios include Apple capturing 5% of the electric vehicle market by 2025, selling 417,000 vehicles at an average price of $75,000.
“We believe that a car makes sense for Apple as a hardware platform supporting its services but the lower profitability of the auto business likely means that investors would see limited earnings impact from such a move,” Goldman explained.
Instead, Goldman ultimately sees Apple following a similar path it took in the TV industry and becoming a service provider in the electric vehicle market rather than manufacturing a low-margin vehicle from scratch, according to the note.
"[Apple] may have alternative means to provide almost as good a [car] experience without the need to develop and sell a full EV platform," Goldman said.
Whichever path Apple takes to entering the automobile market, the long term impact to its services business could be big if self-driving vehicles become the norm and drivers are able to take their attention off the road and divert it to information services.
"The main reason Apple and other tech companies want to be in this business is due to the large amount of time future consumers are likely to spend in self driving vehicles using information services as they make their way from point A to point B," Goldman said.
Goldman also thinks a "car as a service" subscription model could emerge down the road, "which could be of interest to Apple," the note said.
Whether Apple builds a car or not, Goldman is sticking to its Sell rating and $75 price target, representing downside potential of 43% from Tuesday's close.
