Updated from 8:05 a.m. to include additional information in the fourth paragraph.
NEW YORK (TheStreet) –– With Apple(AAPL) - Get Report reportedly developing its own car, the luxury auto market is its most obvious target -- the area with the biggest potential to move the needle on revenue. Yet investors should understand going in that even an Apple-made luxury car might never be as big a cash cow as the iPhone.
Given the company's history with smartphones, tablets and computers, Apple would likely choose to compete with higher-end vehicles. "Apple has positioned itself as a high-end producer of products, with premium products in pricing and what it offers. But it stands to reason that what is actually produced or the price they'd likely charge [for a car] ... it's way too early to discuss that," said S&P Capital IQ analyst Scott Kessler.
Both The Wall Street Journal and the Financial Times reports suggest that Apple, given its consumer electronics background, is more interested in the electric vehicle market rather than the entire auto market, which is still dominated by internal-combustion engines.
According to AutoNews, the U.S. luxury market accounted for approximately 1.9 million vehicle sales in 2014. By contrast, sales of plug-in hybrid vehicles and battery electric vehicles were only around 6% of that number, with around 120,000 sold domestically in 2014, according to data compiled by Sam Abuelsamid, senior research analyst at Navigant Research. According to Edmunds, the 2015 projection for just the electric vehicle market is around 67,600 units (0.35% of the total U.S. car market), aided by the 2016 Chevy Volt.
And both are far smaller than the overall domestic auto market, estimated to be 16.8 million vehicles by Kelly Blue Book and 16.4 million by Edmunds.
Here is a look at the U.S. market share each luxury car maker had, as of 2014, according to research firm Statista:
Now, consider this: Of the $74.5 billion in revenue Apple generated in the fiscal first quarter of 2015, which ended Dec. 27, $51.2 billion came from the iPhone. In fiscal 2014, Apple generated $182.8 billion in revenue. Approximately $102 billion of that came from the iPhone -- $4 billion more than BMW generated in all of 2013.
By comparison, Tesla Motors(TSLA) - Get Report generated just over $6 billion in revenue in 2014, though the company's manufacturing plant, located in Fremont, Calif., is not operating at full capacity.
At its peak output in 2006, The Tesla Factory -- then operating as NUMMI, a joint venture of GM(GM) - Get Report and Toyota(TM) - Get Report -- produced around 428,000 vehicles a year. Assuming Tesla was able to build and sell 428,000 cars a year at roughly $67,000 (the base price of the Model S), that would equate to $28.68 billion in automotive-related revenue.
Abuelsamid said that it's likely that Apple would go into the premium market, competing against Tesla. "For any company getting into building cars for the first time today, this is probably the only rational course," he said in an email.
In a research note, Citigroup analyst Jim Suva, who rates Apple a buy with a $135 price target, said he believes the company's alleged talks with Magna Steyr, an independent auto manufacturer -- and subsidiary of Magna International (MGA) - Get Report -- could help the company's ambitions. The potential is there, he thinks, for Magna Steyr to enter a relationship with Apple similar to the one it has with Foxconn (FXCNY) , which builds its iPhones.
"We expect Steyr production of ~140k this year and believe plant capacity nears ~200k," Suva wrote in the note. "Apple's reported interest perhaps suggests a limited initial intent on building its own manufacturing footprint or partnering with an existing automaker (as Google has been reportedly open to doing). It also may suggest a modest initial volume ambition, which makes sense considering premium EV price-points (Tesla produced 35k units last year vs. 16.4mln U.S. market)."
Magna Steyr did not return a request for comment about its potential expansion plans for this story.
"There's a lot of interest and excitement about Apple, as always, but in this case, it seems considerably premature to size the market and gauge Apple's related opportunity," Kessler said.
It's unclear at this point what kind of car Apple would produce -- assuming its plans reach that stage. The Journal suggested it would be a minivan. "That would make sense," Kessler said, "because it has more room and flexibility than a traditional sedan and it's more utilitarian than a convertible."
Investors are abundantly excited at the potential for Apple building and producing its own cars, and perhaps, rightfully so. However, given Apple's tendency to go after the higher ends of markets, those enormous revenue numbers being tossed around may need to be tempered by a dose of reality.
--Written by Chris Ciaccia in New York
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