For technology buffs, one of the more exciting activities out there is to watch Apple (NASDAQ:AAPL) patents. Sometimes, Apple will patent some amazing or otherwise bizarre piece of technology, but never actually do anything with it. The game that follows is whether or not a new patent will ever see the light of day as a product. For anyone who may have guessed that Apple would ever get into self-driving electric cars, the answer is now closer to “it's happening” than ever.
A Whole New Market
The latest word notes that Apple is now setting up a deal with Hyundai Motor (OTC:HYMLF) that will ultimately put Hyundai in charge of making the Apple car. Reports suggest that Apple wanted to work with an established automaker in North America that would be willing to allow Apple control over both the hardware and the software that would be used in such a vehicle.
Hyundai fit the bill, and reports note that, when the deal does go live, it will be the Kia plant in West Point, Georgia that gets the business. Reports also suggest that the Apple car should actually be a thing you can buy by 2024, though that target may get pushed back depending on several factors, including some that may not even be known yet. Indeed, it's actually possible that Apple may end up partnering with other automakers as well, with other automakers likely having at least some interest in making the Apple car a reality.
Why an automaker would be interested in building the Apple car is clear, but why Apple would want to get into cars is perhaps less so. A report from Morgan Stanley last month explains the matter more clearly; Apple's entry into such a market would represent a share of a $10 trillion market coming into Apple's coffers. Since the smartphone market represents about $500 billion, Apple would need a much smaller share of the global mobility market to have a market that's a match for its smartphone operations.
But Does it Matter?
While the addition of a whole new market on par with Apple's current smartphone business could be welcome, it doesn't have much bearing on the analyst perspective, as revealed via our latest research.
Apple has been rated as a “buy” for the last six months, with little change in the ratios until recently, which actually managed to tilt more bullish than they already were. Six months ago, Apple had four “sell” ratings, 12 “hold” and 29 “buy.” Three months ago, that shifted to three “sell”, 15 “hold” and 27 “buy.” A month ago, that changed once more to three “sell”, 14 “hold” and 26 “buy,” and now we stand at two “sell”, 11 “hold” and 26 “buy.” It's noteworthy that so much sell-side activity left the pool in just the last month, though causes for such a move are unclear.
The price target, meanwhile, has only ramped up. Six months ago it was down at $92.63 per share, increasing to $111.48 three months ago. A month ago it stood at $117.73 before hitting today's level of $131.59. The price target has actually represented downside potential for Apple for the last three months, though with Apple currently trading at $133.94, and after-hours trading seeing Apple hit $137.79, the downside doesn't seem likely to materialize in share prices.
A Massive Move...if it Works
It's easy to just shrug off the impact of an Apple car in Apple's overall operations. It's about like seeing Chipotle (NYSE:CMG) start offering electrical supplies. Selling light switches with burritos isn't exactly a case of complementary goods as traditional economics rates it, even if eating a burrito in the dark is a recipe for failure.
Here, though, things are different. Consider that the Apple car is poised to be electric, and now consider Apple's target market. There certainly seems to be overlap between the market for Apple products and electric cars, so extending that Apple walled garden to an electric car gives users one more opportunity to express their Apple brand loyalty, a formidable force under normal circumstances.
Better yet, since the car is self-driving, that opens up a whole new slate of opportunity for Apple to offer its products directly to drivers. Music, television shows, even games; drivers will be looking for new distractions while their cars take them wherever they want or need to go, and that means fresh revenue for Apple's currently-existing product lines.
Apple only needs a comparatively small slice of that global transport market to match what it's already doing in smartphones, and with Apple brand loyalty the force that it is, it might have a much better chance of capturing that market than some might think. We've seen it work already from television to tablets, so to think it could apply to cars isn't exactly a reach.