Speculation this week on an Apple (AAPL) electric car arriving within five years has become so feverish, tech analyst Rod Hall at Goldman Sachs took time out of his busy holiday schedule to crunch the numbers on the potential financial impact of this alleged new piece of hardware.
Apple bulls may want to simmer down on the iCar (or as Yahoo Finance’s Jared Blikre has coined it, the AppleMobile) if Hall’s projections are to be a guidepost.
Assuming Apple could grab 5% market share of the electric vehicle market with a $75,000 iCar in 2025 that sports a 7% operating margin, the tech giant would only see a 3% bump in earnings. If Apple sells its electric car for $100,000, snags 5% of the EV market, and drives a 10% operating margin, Hall estimates the bump to Apple’s earnings would be 5%.
Not too impressive for Apple given its much higher margin structure currently driven by making less capital intensive iPhones, iPads, and Macs using outside suppliers. But the somewhat subdued earnings accretion from an iCar, as Wall Street analysts call it, reflects the costly nature of making an electric car. Or, a car of any kind — see low single digit percentage operating margins at Ford (F) and General Motors (GM).
“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,” Hall says.
A muted response from Wall Street
Apple could start production on its own electric vehicle as early as 2024, according to a report out of Reuters this week. The car will be powered by a “breakthrough” monocell battery design that offers up greater range than traditional electric vehicle batteries. Apple, which did not respond to Yahoo Finance’s request for comment, is also reportedly exploring the use of a lithium iron phosphate battery, which would not include hard to mine metal cobalt.
Wall Street has generally come out with a muted tone on the iCar speculation.
Wedbush tech analyst Dan Ives contends making an electric car is an operational headache that Apple CEO Tim Cook probably won’t want to take on directly.
“There are the Herculean-like auto production capabilities, battery technology ramp, financial model implications, and regulatory hurdles involved in such a game changing initiative,” Ives explains. “In addition, on the autonomous front and given safety/regulatory issues we would see a longer timeframe if Apple ultimately heads down this path especially given the cautious DNA of Cook & Co. in launching new products.”
Speculation on Apple’s potential EV entry has put a spotlight on shares of many suppliers in the space. Battery startup QuantumScape (GS) has seen its stock surge 50% this week, per Yahoo Finance Premium data. A source tells Yahoo Finance QuantumScape is currently not in talks with Apple.
Meanwhile, shares of Lidar sensor maker Luminar (LAZR) are up 18% this week. The company debuted on the Nasdaq Composite earlier this month.
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