Apple's vertical integration could make Apple Car uniquely profitable

Apple Park photo of the side of the main building
Apple Park photo of the side of the main building (Image credit: Apple)

What you need to know

  • Morgan Stanley believes the Apple Car could shatter the norms in auto earnings.
  • Analyst Katy Huberty points to Apple's ability to vertically integrate its business.

As reported by AppleInsider, Morgan Stanley believes that Apple may be able to disrupt the automotive industries normally razor-thin margins with its own self-driving electric car. Analyst Katy Huberty pointed out that commanding just 2% of the auto market would match the size of the iPhone business.

Speaking about Apple's vehicle opportunities, Huberty said that it makes sense for Apple to enter the car market because of the total size of the industry. Smartphones, Huberty points out, are a $500 billion total addressable market (TAM). Apple has about one-third of this market. But the mobility market is "$10 trillion."

Huberty believes that Apple will approach its electric car the same way that it does the rest of its business, with vertical integration from the components to the financing.

"Apple really only succeeds when it's vertically integrated. This means designing the components and designing every part of the product how it looks and feels to the consumer, the software and the ecosystem that surrounds those products ... Financing and leasing and trade-in programs are incredibly important to a successful auto strategy," she writes."

The analyst pointed to other markets where margins were tight before Apple broke the mold as an indication it could do the same with the auto market.

"With respect to margins, investors frequently say that the current auto industry margins are highly unattractive compared with Apple's current mid-20% EBIT margins today. But I would remind everybody that when Apple entered the PC, handset and wearables market, the margins of competitors were razor thin."

A report from earlier tonight confirmed that Hyundai is one of the automakers that Apple is in talks with to potentially build its self-driving vehicle.

Joe Wituschek

Joe Wituschek is a Contributor at iMore. With over ten years in the technology industry, one of them being at Apple, Joe now covers the company for the website. In addition to covering breaking news, Joe also writes editorials and reviews for a range of products. He fell in love with Apple products when he got an iPod nano for Christmas almost twenty years ago. Despite being considered a "heavy" user, he has always preferred the consumer-focused products like the MacBook Air, iPad mini, and iPhone 13 mini. He will fight to the death to keep a mini iPhone in the lineup. In his free time, Joe enjoys video games, movies, photography, running, and basically everything outdoors.