Morgan Stanley’s thoughts on Apple, Kia and a car

The analysts agree: When (and if) the Apple Car arrives, Investors won’t know what hit them.

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

Following reports from DongA regarding Apple’s potential investment into Kia to set up a production facility for car development, we share key thoughts from the US & Asia Pacific Auto teams and the US IT Hardware team.

Young Suk Shin, Asia Pacific Auto Team: If the news is true, Apple is effectively putting its own capital for capital expenditures, while Kia gets to manufacture. From that perspective, it can be seen as a better option, but we don’t believe this changes the thesis that Kia ends up being an outsourcing firm. The Apple halo- effect/sentiment is overtaking outsourcing concerns for now.

Kay Huberty, U.S. IT hardware: Investors are likely to underestimate the financial impact of a potential Apple Car, especially when considering the effect that Apple’s entrance into other markets has had on the addressable opportunity. Simplistically, Apple typically expands the size of any market it enters. At maturity, the iPod shipped more than 3x annual peak units of its predecessor, the Sony Walkman. Despite an ASP of more than three times the feature phone market, smartphones surpassed the peak feature phone market size less than 10 years after the iPhone launched. Apple Watch shipments today exceed the entire Swiss watch market. In other words, applying a market share figure to the current EV market forecast is likely to vastly underestimate the size of Apple’s car business in the future.

Adam Jonas, US Autos & Shared Mobility Team   We do not believe investors are prepared for the 2nd order impacts of a potential Apple entry into the E-mobility and internet-of-cars space… Our forecasts for 31% EV penetration by 2030 do not give any explicit (or even implicit) consideration for a potential Apple Car. Such a development, in our opinion, could materially expand the broader market for EVs.

My take: Oh boy.

15 Comments

  1. John Konopka said:
    Katy’s comment is interesting. There is a reason that the iPod overtook its predecessors. The iPod provided much better features including connectivity to computers and networks. Sony, and others, for years sold mini disk audio units for which they worked really hard to prevent connection to computers. Hard to know what the world would be like if Sony had made a mini-disk player with 5MB disks that easily sync’d to your computer.

    I have no inside information about what Apple will actually do. It won’t simply be a better version of a battery and an electric motor on four wheels. The Apple Watch isn’t just a better watch. Telling time is almost the least that it does. Whatever Apple dreams up it will expand the utility and safety of transportation in ways that will change the market.

    For one, it will be integrated with your Watch, iPhone, iPad and Mac. You will be able to check the state of charge of the battery from anywhere and you will schedule charging when it is best to get power from the grid. You will set routes at home and they will sync or appear on the display when you get into the car. The car will unlock with your Watch. Just for starters.

    Full self driving is years away, but lane detection, collision and blind spot detection and better cruise control will be a huge help.

    A lot of these features will be available elsewhere, Apple will integrate them into a smooth playing symphony.

    6
    February 3, 2021
    • Jerry Doyle said:
      @John Konopka. There are unlimited safety possibilities for what the cars will do. I was viewing last evening a YouTube video interview of Elon Musk by Sandy Munro, the care break down specialist. Elon Musk says he expects cars to monitor drivers closely and when the driver appears to be experiencing physical problems then the car immediately spirits the driver to the nearest emergency room with advance calling; or if you are nodding then the car finds the nearest safest pull over such as a road side park for you to sleep.

      0
      February 3, 2021
  2. Michael Goldfeder said:
    How many of the 1.65 billion Apple device users will be interested in an autonomous EV from Apple? The built in advantage of an already satisfied ecosystem of users is a rather nice base to begin.

    3
    February 3, 2021
    • Gregg Thurman said:
      How many of the 1.65 billion Apple device users will be interested in an autonomous EV from Apple?

      One one-thousandth of one percent (0.000001) penetration is 165 thousand units. Me thinks selling exclusively to Apple’s top tier installed base has plenty of head room for Apple Car growth.

      3
      February 3, 2021
  3. Jerry Doyle said:
    This comment expounds on my previous comments earlier on the Evercore analyst “Where’s there’s smoke, there’s fire.”

    Don’t over analyze Apple’s entry into the BEV market as some “transportation solution” to solve traffic congestion or whatever. Apple sees a vibrant market for EVs opening up where in ten years auto manufacturers all will be producing EV cars. Apple believes it can compete better in this market than all the other traditional car players and, Apple is going for that market.

    Apple believes that with its hardware, software and services integration partnering with a premium car manufacturer that Apple can turn out a product that will be in high demand. It’s all about getting us from point A to point B in the most relaxed, least stressful and productive method while affording us a serene experience.

    I’m not as optimistic as Katy Huberty that Apple will enter the market and just blow other brands away. She doesn’t understand fully the passion many car owners have with their cars, or the loyalty many hold with existing car brands. For example, how many of you Tesla owners will walk away from your Tesla when the Apple car arrives?

    The opportunity I see for Apple is additional revenue sources in future years to continue growing its business, revenue sources spun off the iCar once the brand matures. We use Apple Pay financing to purchase the Apple Car. We select the Apple Care Protection Plan and purchase Apple Car Insurance. “One Stop Shopping all done with a few clicks the same as we purchase our iPhones, iPads, Macs online now.

    2
    February 3, 2021
    • Jonny T said:
      Ha. I’m setting aside 2x the cash I think it will cost, ready to hand over in an online booking within seconds of it going live; and I doubt very much if I am alone. I’m planning on beating Stephen Fry, Jeremy Clarkson and millions of others who will be in line too! (And, new meaning to the word ‘collectable’.)

      3
      February 3, 2021
  4. Gregg Thurman said:
    Apple typically expands the size of any market it enters….current EV market forecast is likely to vastly underestimate the size of Apple’s car business in the future.

    This is why Katy is so good. Her team grasps the whole of Apple’s impact on markets, ignoring entrenched players.

    Of course, in EV there really isn’t any entrenched players. The key to success in this space, like all others, will be the entrant’s ability to disrupt common assumptions based on historic performance, that of the market, and of the entrant’s ability to disrupt.

    If you think of the automotive market being EV (ICE’s are dead meat), the entire market is up for grabs, ergo there are no “late” entrants, only Apple and weak competitors.

    I say that because brand amongst current ICE manufacturers won’t necessarily carry over into the EV marketplace, simply because they are starting at the beginning, just like everyone else.

    On the other hand, Apple has the technical expertise (software, processors, maps, etc), resources (capital, cash flow) and production capability (supply chain management, alliances), installed base of high end users, and brand as an innovator like no other, to immediately draw expectations of dominance upon entry.

    All Apple is going to have to do is execute, and it has a world class team with an outstanding history of doing that.

    4
    February 3, 2021
    • Fred Stein said:
      Great point about brand loyalty in cars – died, except for a few older nostalgics. And yeah, Katy and team are so good.

      0
      February 3, 2021
  5. Richard Weathered said:
    I wonder if it will come in any color you like as long as it is white. No problem I like white cars and their high visibility.

    0
    February 3, 2021
    • Jerry Doyle said:
      @Richard Weathered: 🙂 Well, let’s see Richard. There is Apple Red; Space Grey, Silver, Apple Gold, Apple Rose Gold and of course Black and White. 🙂

      3
      February 3, 2021
  6. Ralph McDarmont said:
    For a long time I have resisted the iCar idea but I won’t fight the tide. Let’s go. I bet Sir Ives is very involved. I like that idea. Apple has a habit of turning product categories upside down. Why not jump to smart and awesomely stylish vehicles? I am based in a world where Apple products fit in my pocket or sit on my desk. Seems like I will need a bigger desk.

    0
    February 3, 2021
  7. Mordechai Beizer said:
    It seems to me that the real value would be in freeing up the driver’s time by having a fully autonomous vehicle. Otherwise, it’s just a “nicer” driving experience but not transformational. There’s a story on AppleInsider about the first target being aimed at the enterprise as in driverless delivery vans. It would make sense to me as a way to hone autonomous driving capabilities even if it doesn’t sound like a sexy first product.

    0
    February 3, 2021
  8. Paul Lane said:
    @ Jerry Doyle
    Interesting comment re brand commitment. However lots of us who were previously quite loyal to a particular watch brand switched to the Apple Watch when we saw its advantages. I suspect many Tesla owners would do the same if the rumoured Apple Car was clearly superior. Not to mention Audi, BMW and Mercedes owners – who are more likely to be the sort of buyers Apple will be targetting.

    1
    February 4, 2021
  9. Norman Lotz said:
    Kia, not Fiat/Chrysler. sigh

    0
    February 4, 2021
    • Norman Lotz said:
      Hyundai’s use of the company called Canoo (GOEV) for its EV platform is interesting. I can see why that’s attractive to Apple.

      0
      February 4, 2021

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