Gene Munster: Why an Apple Car would be in Apple’s wheelhouse

"Apple Car revenue could, over the long term, be greater than all of its other businesses combined."

From a note to Loup Ventures subscribers that landed on my desktop Friday.

Munster's five bullet points:

  • A car is in Apple’s wheelhouse. Cars will become a computer on wheels – a collection of hardware, software, and services. The nexus of these three elements is what Apple excels at. I think of cars as big tech devices that will have services sold around the hardware. The software will hold it together. This model has supported a 25-30% operating margin, in line with Apple’s current margin structure.
  • Just like other Apple devices, Apple would design the car and a third party would build it.
  • The revenue impact to the business would be material given the total addressable market for auto is massive. For example, if you assume Apple can capture 10% of the auto market, (they have just under 20% of the phone market today), by selling a $60k car, it equates to $540B in annual revenue. That compares to Apple’s FY22 expected total revenue of $380B.
  • In other words, Apple Car revenue could, over the long term, be greater than all of its other businesses combined.
  • I caution it’s too early to price in the potential given we don’t know if the car will see the light of day, and even if it does, it’s five-plus years away. That said, the impact on Apple’s valuation could be staggering. Shares of Apple currently trade at 6.8x next year’s revenue forecast. If Apple captures 10% of the global auto market, and investors value auto revenue similar to how they value Apple’s current revenue, the car would add $3T to Apple’s current $2.6T market cap. On the other hand, if Apple captures 1% of the car market, it would add about $300B to the company’s valuation. Using this framework implies the market is now expecting Apple to eventually capture about 0.3% of the global car market.

My take: Several analysts have weigh in with seriously bullish notes. None have changed their Apple estimates or price targets. Makes you wonder how serious they really are,

22 Comments

  1. Jerry Doyle said:
    “Apple Car revenue could, over the long term, be greater than all of its other businesses combined.”

    Retail investors have driven up stock prices of Rivian Automotive, Lucid, Tesla, Fisker, Inc., Volcon, Inc., XPeng, along with some legacy car companies moving into the EV space such as Ford, GM, on inherent future growth. It is difficult for me to believe that the same enthusiasm for investing in these companies driving up their respective stock prices isn’t aligned similarly with Apple resulting in higher share price value in the coming weeks and months. If investors begin to believe that Apple can do to the EV market what Apple did to the smartphone market, then we could see a disproportionate investor effect on the Apple stock price going forward as we have see with Tesla’s prospects for future marketable growth.

    In summary, I would not be shocked if Apple stock price in the coming weeks and months begins to lift-off with an influx of new money rushing in to be ahead of the groundswell of new potential growth little different than individual regret of not being early to arrive as a Tesla investor.

    0
    November 21, 2021
    • Robert Paul Leitao said:
      Jerry: Do you currently have positions in any of the enterprises you mentioned in your post? In other words, have you stepped into the EV market as an investor?

      1
      November 21, 2021
  2. Fred Stein said:
    Apple’s market cap goes up by $1T by 2025 even without an Apple Car.

    A car would add couple more $Ts, when and if…..

    Expect more rumors to juice the stock price for quite some time.

    1
    November 21, 2021
    • Robert Paul Leitao said:
      Fred: A trillion dollars here and a trillion dollars there and eventually we start talking about real money! Seriously, at this time, what do you think the odds are Apple will enter the personal transportation market by 2025 as either an auto maker or a direct and significant solutions provider of some kind?

      1
      November 21, 2021
      • John Konopka said:
        I wonder what it is like to work on Apple’s finances. After dealing with billions of dollars all day how do you go grocery shopping and worry about saving fifty cents a pound on ground beef?

        3
        November 21, 2021
        • Robert Paul Leitao said:
          John: As someone who has spent most of his career with accounting/finance as a core component of one’s work, it’s all digits on a screen. Speaking personally, $1,000 on a screen doesn’t look like much, but being handed ten $100 bills feels like much more money.

          1
          November 21, 2021
        • Gregg Thurman said:
          After dealing with billions of dollars all day how do you go grocery shopping and worry about saving fifty cents a pound on ground beef?

          It’s just zeros.

          0
          November 21, 2021
      • Fred Stein said:
        Glad you asked. I really can’t say. It’s is a fascinating question, for mental recreation. I’m sincere. Practically, Tim keeps saying AR-not-VR and health.

        Health is $16T globally. One tiny niche, clinical trials, is $80B, and stuck in fax, snail mail, physical presence, resulting in high patient drop out which hurts ROI for big pharma, who pass the cost to us.

        AR? “Apple/AR-as-a-service” means the whole of Apple is the platform for creation and consumption of AR in our real world experiences. VR is the antithesis of Apple in that it imposes the technology on the UX.

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        November 21, 2021
        • Robert Paul Leitao said:
          Fred: You bring up a good point. How do we factor and then discount for time and probability Apple’s entry into more than one or two big global markets? By the way, I do like the way you characterized the cost of a repurchase tax in yesterday’s conversation.

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          November 21, 2021
  3. Rick Povich said:
    “Several analysts have weigh[ed] in with seriously bullish notes. None have changed their Apple estimates or price targets”

    That’s what I’d noticed and thought it odd that even Dan Ives or Katy Huberty didn’t even offer speculative Bull cases. I guess it’s still too early in this saga for them to go out on a limb.

    1
    November 21, 2021
    • Greg Bates said:
      I think the problem about analysts staying put on price isn’t that they aren’t serious but rather with the concept of target price–usually meaning what the company is worth today or in the near future. Speculation on an Apple car is about what might happen years outside that time frame, suggesting the stock will rise much later. The value of these pronouncements today, IF they are correct, is that Apple provides a secure investment now that will pay off big time later.

      There’s an opportunity here to define a long-term target price, LTP, meant to encompass the opportunities a company has over the next 10 years. Cathie Wood is already doing this with Tesla and other companies in her portfolio, as are others. It would be nice to formally inaugurate the term, and perhaps modify the current term covering expectations for no more than a year out as short-term target price, STP.

      This begs the question, what are these analysts’ LTPs?

      3
      November 21, 2021
      • Robert Paul Leitao said:
        Greg: Good question. As a long-term investor, I do a lot of research not only on an enterprise’s near-term performance prospects but also potential long-term market opportunities. How to “value the variables” is a challenge. The most highly respected analysts covering Apple are talking about an Apple car. At this time that’s enough to keep me interested and intrigued. I do like the idea of a LTP projection with current 12-month price targets being the STP.

        1
        November 21, 2021
  4. Robert Paul Leitao said:
    Ford and GM have recently announced new chip partnerships as both automakers push further into EVs. If Apple is planning for anything like a Level 5 EV anywhere near a 2025 timeline, future chip supplies will need to be planned and contracts signed in advance of production. One more thing to watch along the way.

    0
    November 21, 2021
    • David Emery said:
      Well, if this was an aircraft, I would say they’d have to be ready to enter verification by about 2023 (2 years from now), to get ‘item into test’. But it’s not clear to me that the US or any other country is ready to formally accredit/approve fully autonomous vehicles. It’s not like commercial aviation where governments provide a ‘authority to operate’ certification.

      (And I think that’s A Bad Thing. “Authority to operate [autonomously]” is something governments should be requiring and providing for autonomous vehicles. )

      1
      November 21, 2021
  5. Gregg Thurman said:
    I find it interesting just how animated the discussion gets when talking about a phantom product that MAY get announced in three years.

    0
    November 21, 2021
    • Robert Paul Leitao said:
      Gregg: I’m finding references for “Project Titan” as far back as 2014. Almost all of us drive a car and most of us would like to acquire what we think will be an Apple Car. Because an Apple Car project has never been officially announced by Apple, imaginations do run wild. It’s more fun than talking about the weather and definitely more fun than discussing politics.

      1
      November 21, 2021

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