Carl Icahn Thinks An Apple Car Represents A "Change The World" Opportunity

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On Monday, right after the 13F filing season ended, famed investor and corporate raider Carl Icahn issued an open letter to Apple Inc. AAPL’s one-and-only Tim Cook.

Icahn and his team start by congratulating the CEO and the rest of the company’s management for the “impressive operational performance and growth.” Icahn finds “truly impressive that, despite severe foreign exchange headwinds and massive growth in investment (in both R&D and SG&A), the company will still grow earnings by 40% this year,” according to his firm’s forecast. 

Icahn Capital now believes Apple shares are worth $240.  “Apple is poised to enter and in our view dominate two new categories (the television next year and the automobile by 2020) with a combined addressable market of $2.2 trillion, a view investors don’t appear to factor into their valuation at all,” the letter explains.

While another Benzinga article will go over the general contents of the epistle, this note will look into Mr. Icahn’s comments regarding the Apple car.

Icahn starts by stating that, while his firm respects and admire “Apple’s predilection for secrecy, the company’s aggressive increases in R&D spending (and some of the more well-supported rumors) have bolstered our [the firm’s] confidence that Apple will enter two new product categories: television and cars. Combined, these two new markets represent $2.2 trillion, three times the size of Apple’s existing markets (if we exclude Apple Watch).”

Amongst these new markets, the car market is, by far, the largest. At $1.6 trillion, the huge addressable market for new cars is roughly three times larger than the smartphone market. Icahn explicates, “It’s estimated that people spend an average of 1 hour every day traveling, mostly in cars, but not everyone drives, implying that the average time that daily commuters spend in a car is much higher. We believe the rumors that Apple will introduce an Apple-branded car by 2020, and we believe it is no coincidence that many believe visibility on autonomous driving will gain material traction by then.”

He continues, “While Apple currently addresses this market with CarPlay, it seems logical that Apple would view the car itself as a the ultimate mobile device to which it could bring its peerless track record of marrying superior industrial design with software and services, along with its globally admired brand, and offer consumers an overall automobile experience that not only changes the world but also adds a robust vertical to the Apple ecosystem.  And for Apple, the car market is more than big enough to ‘move the needle’ significantly, even as the world’s largest company."

The investor highlights a few factors that represent a “change the world” opportunity for Apple, including increasing oil costs, global warming, “the geopolitical risks associated with oil dependency (especially as fuel for automobiles),” and, more recently, the emergence of cost effective alternatives.

Icahn concludes, “As a mobile device that is differentiated by design, brand, and consumer experience where software and services are increasingly critical, an Apple car would seem to be uniquely positioned.”

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Posted In: Analyst ColorHedge FundsOpinionAnalyst RatingsTechGeneralApple CarCarl IcahnIcahn CapitalTim Cook
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