If Apple makes a $75K electric vehicle, here's how it would affect its bottom line
The speculation about an Apple (AAPL) electric car arriving within five years has become so feverish that Goldman Sachs tech analyst Rod Hall took the time to review the numbers on the potential financial impact of this supposed new one Piece to determine hardware.
Apple cops might want to simmer on the iCar (or, as Jared Blikre of Yahoo Finance coined it, the AppleMobile) if Hall's projections are to serve as a guide.
Assuming Apple could achieve a 5% share of the electric vehicle market with a $ 75,000 iCar in 2025 that has an operating margin of 7%, the tech giant would see only a 3% decline in profits. If Apple sells its electric car for $ 100,000, takes 5% of the EV market, and has an operating margin of 10%, Hall estimates that Apple's profit increase would be 5%.
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Not too impressive for Apple given the much higher margin structure currently being achieved by making less capital-intensive iPhones, iPads, and Macs with third-party vendors. However, the somewhat subdued increase in profits for an iCar, as Wall Street analysts call it, reflects the cost 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).
Tim Cook, Apple CEO, speaks during Apple's annual global developer conference in San Jose, California, the United States, on June 3, 2019. REUTERS / Mason Trinca
"We believe that having a car makes sense for Apple as the hardware platform that supports its services, but the lower profitability of the auto business likely means that investors would have limited earnings impact on such a move," Hall said.
A muffled answer from Wall Street
Apple could start producing its own electric vehicle as early as 2024, according to a report by Reuters this week. The car is powered by a "groundbreaking" monocell battery design that offers a longer range than conventional batteries for electric vehicles. Apple, which did not respond to Yahoo Finance's request for comment, is also reportedly investigating the use of a lithium iron phosphate battery pack that would not contain a hard-to-break metal cobalt.
Wall Street has generally kept iCar speculation on a muted note.
Dan Ives, technology analyst at Wedbush, claims making an electric car is an operational issue that Apple CEO Tim Cook is unlikely to want to address directly.
"There are the Hercules-like auto-manufacturing capabilities, the ramp of battery technology, the financial model implications, and the regulatory hurdles associated with such a groundbreaking initiative," explains Ives. "Additionally, in the autonomous space, and given security and regulatory issues, we'd see a longer timeframe if Apple ultimately went down this path, especially given Cook & Co.'s cautious DNA when it comes to new product launches."
Speculation about Apple's potential entry into electric vehicles has brought the stocks of many vendors in the space to the fore. According to data from Yahoo Finance Premium, QuantumScape (GS) inventory increased 50% this week. According to a source, Yahoo Finance QuantumScape is not currently in talks with Apple.
Meanwhile, shares in lidar sensor maker Luminar (LAZR) are up 18% this week. The company debuted on the Nasdaq Composite earlier this month.
Brian Sozzi is an editor and presenter at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.
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