J.P. Morgan: Apple Car team will ‘go big or go home’

But the key component is not likely to reach maturity until “towards the end of the decade,” says analyst Samik Chatterjee

From a note to clients that landed on my desktop Monday:

Key highlights relative to our expectations are: 1) Apple will aim to be a full-fledged manufacturer of BEVs [battery electric vehicles] with AV [autonomous vehicle] capability; 2) Apple will extensively rely on contract manufacturers to preserve returns despite lower hardware margins; 3) The launch will be delayed till AV technology reaches maturity, likely towards end of the decade; 4) All-in margins for Apple in the auto industry should be higher given high-margin Services monetization – amplified in a fully autonomous vehicle.

Go Big or Go Home approach. Despite well understood challenges in being a new OEM, and an easier alternative of being a technology supplier in the automotive industry, we expect Apple will look for control on the pace of innovation as it pursues differentiation and positioning in the growth market of BEVs with AV functionality. Primary reasons for interest in this end-market include: 1) TAM [total addressable market] of $2.55 trillion vs. $420 bn for smartphone; 2) Opportunity on installed base of 1 bn vehicles long-term, with expected transition towards BEV/AVs near-term; and 3) Synergies with existing Services and expansion of TAM in a fully autonomous vehicle.

Maintains Overweight rating and $150 price target. 

My take: Go big or go home sounds like Apple. I hope they go big. I’ll be disappointed if they don’t.


  1. Gregg Thurman said:
    There is a huge disparity in the size of TAMs between automotive and smartphones. There is also a huge disparity in gross margins between the two that offsets a great deal of automotive’s TAM, ie, $204 Billion automotive gross margin vs $147 Billion smartphone gross margin.

    I’m not saying Apple won’t introduce an EV, I just don’t see the motivation to do so, which means that if Apple is indeed working on an EV, it intends to bring a dimension to it that nobody has addressed as yet.

    January 12, 2021
  2. Gregg Thurman said:
    In fear of this post being interpreted as political I’d like to point out what I’m seeing in the FX markets.

    From late July 2020 the USD traded relatively flat until the November election, it then declined in an almost straight line from ~94.27 to ~88.16 (fully 611 basis points) last Tuesday. On that Tuesday Congress certified the electoral votes and the USD has rebounded in another straight line to ~90.20, its sharpest rebound since last March.

    The trend bears watching as it may indicate that FX traders are seeing a bright future for the USD with the election process concluding.

    January 12, 2021
    • Fred Stein said:
      Thanks Gregg. Not political and very useful to give us the bigger picture. All investors need to keep an eye on macro economics. And many may not see this.

      January 12, 2021
    • Robert Paul Leitao said:
      Gregg: I’m not seeing any significant change in the recent three-month forex trend relative to the Dollar vs. the world’s reserve currencies. Against which particular reserve currency are you seeing this micro trend? The chart I’m looking at now suggests the exchange rate of the Dollar vs. the Euro, for example, has been anything but flat since last March. How is a strong dollar bullish for either Apple or the US economy?

      January 12, 2021
  3. I can’t tell you how many Quarterly calls I’ve listened to where significant FX headwinds were cited by Luca Maestri.

    January 12, 2021
    • Bart Yee said:
      From Apple’s Q4 2020 earnings call and relative outlook for Q1 2021 from Luca Maestri:

      “Hi, Katy, obviously, we don’t provide any outlook at the gross margin level for product categories. What I said in my prepared remarks, we expect gross margins in total for the company to be pretty much in line with what we’ve seen during the last quarter, which, obviously, as you said, it’s very good, right, because we are offering the new phones at price points that are essentially unchanged, and we’re taking on a lot of new technology into the phones. I would say the commodity environment is good.

      For the first time in many, many quarters, I don’t have to say that foreign exchange is a headwind getting into the quarter.“

      January 12, 2021
      • Bart Yee said:
        I would say those two statements alone – overall gross margins remaining close to previous (~38.2-38.8%) (in light of some hardware compression offset by expanding services) and favorable FX internationally for the company gives confidence in this quarter’s earnings and outlook. How much it carries over to the rest of 2021 remains to be seen.

        January 12, 2021

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