A few days ago, I asked the Twitter-verse about Apple’s giant cash pile: what should the company do with its dry powder, now that another $14 billion has been raised through debt?
The answers were well balanced across a few options: a dividend increase, more share buybacks and a new product launch.
It has become increasingly likely that at least some of Apple’s new cash raised will be applied towards the latter: the development of a new “device”. At least some on Wall Street seem to think so. The product in question would be an autonomous vehicle.
Get ready for the Apple Car
CNBC has reported that the Cupertino company will likely enter the electric vehicle market via a business arrangement with Korean auto maker Hyundai.
According to the report, Apple will invest $3.6 billion in the partnership. The Cupertino company will likely contribute with software, some of the hardware and connectivity. Hyundai will probably stick to what it knows best: auto parts and assembly.
This is the most detailed report to date on Apple’s plans to launch its own car. The developments align with reports from Wall Street analyst Dan Ives, from Wedbush, shared about a month ago:
“We believe […] that many on the Street would rather see Apple partner on the EV path than start building its own vehicles/factories, given the margin and financial model implications down the road […]. This speaks to our view that the chances of a strategic partnerships with the likes of a Tesla, VW, Hyundai or other auto manufacturers in China are in the 70%+ range over the next few years.”
Worth noting, Apple’s autonomous vehicle push should not result in production and sales for another three years, at least. Bloomberg suggests that a fairly small batch of 100,000 units will leave the assembly line in 2024.
In previous reports, analyst Ming-Chi Kuo of TF Securities has even speculated that the Apple Car would not be unveiled until 2028 or even later.
How much should investors care?
It is not too early to start estimating the size of the EV opportunity for Apple. For example, JPMorgan analyst Samit Chatterjee calculates that first-year production of the Apple Car will reach about 1% to 3% of the global luxury vehicle market around 2025.
However, I would caution investors not to get too peppy about this venture. This is not to say that electric vehicles will not be a growth avenue for the Cupertino company in the future. Rather, I fear that short-term excitement, also known as “market buzz”, could lead to Apple shares rallying too fast on the back of Apple Car news.
This is precisely what seems to have happened in December 2020. Driven by Apple Car excitement, the stock rallied almost 10% in only one week, starting on December 21. By the following week, shares had returned to mid-month levels.
This time, the news on the Apple-Hyundai deal has not led to a knee-jerk spike in Apple’s share price. Should one happen in the foreseeable future, I advise investors to proceed with caution.
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