While there was no shortage of positive news for Tesla (NASDAQ 🙂 in 2020, investors who are optimistic about the Palo Alto, California-based electric car maker may have some bad taste when they say goodbye to this tumultuous years, courtesy of Apple (NASDAQ :).
Reuters reports}} that the iPhone maker and the world's most valuable company wants to produce a passenger car by 2024 that could have its own breakthrough battery technology.
After facing setbacks for the past six years, Apple's auto initiative known as "Project Titan" is now progressing well and striving to build a personal vehicle for the mass market, the news service reported Tuesday, citing sources. Central to Apple's strategy, the report states, is a new battery design that could "radically" reduce battery costs and increase vehicle range.
The news of Apple's possible entry into the electric vehicle market in the next four years comes at a time when many analysts are raising red flags about the very high valuation of the market leader in electric vehicles (EV). Tesla's stock is up 665% this year, pushing its market cap above $ 600 billion, which is more than the valuation of the top seven automakers – combined.
While there could be many other reasons why Tesla & # 39; s dazzling rally could sputter in 2021, Apple's auto plan is probably not one, at least in the short term. Analysts say the auto business does not fit the company's business strategy, which revolves around producing high-margin products.
Project Titan
& # 39; world's top 10 automakers based on average gross market cap margins of 15%, according to data from {{0 | S&P Global Market Intelligence. This is much less than the 38% gross margins of Apple & # 39; s products – an impressive number driving the financial success that makes Apple a very different company from Tesla.
Citi analyst Jim Suva said in a note:
“Apple conducts research and development in many areas, and while we are not surprised that the media is talking about Project Titan for cars again, we are very skeptical that Apple will actually produce a car, given the profitability of the auto industry is much lower. "
With these doubts, however, there are a number of developments in the field that show that Apple is preparing something that will disrupt existing players in the EV market.
The largest of these is the restructuring of Apple's auto unit. According to Bloomberg, John Giannandrea, Apple's chief of artificial intelligence, is taking over the self-driving car unit, an indication that Apple sees software and systems as the most important ingredient. Previously, the effort was led by Bob Mansfield, vice president of hardware engineering.
In another development, Foxconn Technology Group, which assembles iPhones and supplies many minor components for them, enters the EV market.
Foxconn announced plans in January and unveiled its own open vehicle platform in October. The company says it will start shipping an EV development kit in April, allowing any developer to build a car on top of their bare chassis and electrical system.
In a note from CNBC, Morgan Stanley analysts raised the possibility that Apple could sell some sort of transportation subscription that wouldn't compete with traditional auto companies selling cars:
"It's not that we think Apple wants to enter the auto industry as conceived by today's auto companies."
Instead, the analysts said, Apple could strive for a better automotive experience using the design and software. It could make money from that through its current array of subscription and service products.
Bottom Line
Rumors about Apple's EV ambitions can certainly get investors in the iPhone maker more excited, as this could be the next big thing they are looking for . But we don't believe this news is a serious threat to Tesla's stock rally.
More likely that Tesla & # 39; s powerful rally will derail next year is that the company is failing to ramp up production, sell more cars and improve margins. These factors are more important measures to justify the boom in Tesla's stock price.
