What you need to know
- Morgan Stanley analysts believe Apple may be Tesla's biggest competition.
- They point to potential services revenue as one of the reasons for Apple wanting to build a car.
Reported by 9to5Mac, a new investor note from analysts at Morgan Stanley says that a car from Apple would be "far more formidable competition than the established OEMs" to Tesla. Like any industry that Apple wades into, the analysts believe that Apple may be building its own self-driving car because it has identified an opportunity to "dramatically improve the user experience."
Morgan Stanley explains that Apple's interest in entering the electric car industry is likely its desire to "enhance the driving experience with vertical integration of hardware, software, and services." At the same time, the company also gets to enter a "large, fast-growing industry" where it can "dramatically improve the user experience."
The note goes on to suggest that the future of services in the car may end up outweighing the business opportunity of selling the physical car itself.
Apple possesses the key ingredients that we believe are critical to be successful in the future auto industry: Access to capital, an ability to attract and retain top talent, proven hardware design (from HMI to battery), and a rich ecosystem to leverage recurring subscription/service revenue. We believe the value of the services opportunity (MAU x ARPU) embedded in Internet-of-Cars (IoC) could potentially dwarf the auto business itself (units x price).
The analysts also point to core technology investments that Apple has made that could be applicable to a potential car business.
Importantly, Apple has recently invested to bring five core technologies in-house, which can aid their car development — processors, battery, camera, sensors, and display. They believe there are other growth drivers like AR, payments, and health that are likely to roll out sooner, making a 4+ year time horizon appear realistic.
This new investor note happens to come on the same that Tesla CEO Elon Musk said he once attempted to discuss selling the company to Apple, but Tim Cook refused the meeting. A Reuters report from yesterday suggested that Apple, if they do move forward, may plan to begin producing a passenger vehicle as soon as 2024.