Apple Car: Too Early To Be Bullish

Fresh rumors about the launch of the Apple Car sent shockwaves through Wall Street. But the Apple Maven believes that the significant spike in stock price is more of a “knee jerk” reaction that could be short-lived.
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A Reuters report sent shock waves through Wall Street on December 21. According to the news source, Apple is on track to unveil a self-branded car in 2024.

It is further speculated that the Cupertino company has been developing new technology to make batteries less costly and more efficient. It is also believed that a partnership with a manufacturing company would be needed to assemble the vehicles.

A quick timeline on the Apple Car

The idea of an Apple Car is not new. Under the label “Project Titan”, Apple has been working on it since 2014, in fits and starts.

In fact, according to MacRumors, the Apple Car had been discussed back in the Steve Job days. But the project was tossed aside so that the Cupertino company could focus on the iPhone first.

Since 2015 at least, Apple seems to have been toying with either street mapping, autonomous driving or even the development of a full-scale car. At one point, over 1,000 employees had been working on Project Titan – before many of them were disbanded in 2016, and then again in 2019.

In June 2019, Apple acquired self-driving vehicle startup Drive.ai, suggesting that the tech giant still had its eyes set on autonomous driving. The December 2020 rumors only served to confirm Apple’s interest in the space.

Price action seems unsustainable

December 21 was on track to be a sleepy day of trading for Apple. But shortly after 3:30 p.m. EST, the share price skyrocketed.

By the closing bell, the stock had moved 1.6% higher, before after-hours trading suggested that the gains would extend into Tuesday. Half an hour after the opening bell, on December 22, Apple shares breached the $134 mark for a moment, finally topping the previous high reached in early September.

Assuming an outstanding share count of 17 billion, Apple’s market value gain in the last half hour of Monday and first half hour of Tuesday combined reached an astounding $140 billion.

For reference, the 60-minute spike in Apple shares alone added up to more than the total market value of companies like Citigroup, Starbucks or Boeing.

Let me remind the reader that all the upside came on the back of mere speculation about a product that could (or might not) be released in three to four years. This is not to mention that, according to Reuters, “pandemic-related delays could push the start of production into 2025 or beyond”.

Also keep in mind that the automotive sector is highly competitive and minimally profitable. Lastly, remember that it took car maker Tesla six years, between the start of 2014 and the end of 2019, to gain only about $55 billion in market value.

In my view, the spike in Apple stock was a bit overdone, a bit too fast. It can probably be best explained by “knee jerk” reaction and enthusiasm over an interesting story that, for now, does not offer much in terms of quantifiable business opportunities.

I would not be surprised to see Apple’s share price ease off the sugar high caused by the Apple Car news. This is not to say, however, that the stock is not a buy for other reasons, including the 5G super cycle, the compelling lineup of new products and services for 2020 and the services opportunity.

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(Disclaimers: the author may be long one or more stocks mentioned in this report. Also, the article may contain affiliate links. These partnerships do not influence editorial content. Thanks for supporting The Apple Maven)