An Apple Car Is Worth 3% Of 2016 Earnings; Not Enough To Get Excited About

• The share price of Apple Inc. AAPL has increased by more than 8 percent over the past month.
• Jefferies’ Sundeep Bajikar has maintained a Hold rating on the company, with a price target of $126.
• Bajikar believes that the automobile industry is poised for disruption and Apple could launch a car as early as 2019, although the car’s contribution potential would be limited.

According to the Jefferies’ report, the automobile sector is “ripe for disruption,” given the combination of various factors impacting the industry, such as its large target market, the transition to autonomous navigation and electric powertrain and the government’s policies to promote automatic safety systems and electric cars, among others.

Related Link: Goldman's Three Reasons To Own Apple: iPhone, iPad, Internet Of Things

All this offers Apple a “favorable opportunity” to “add a Car to its portfolio of mobile devices,” Bajikar stated, while mentioning that the launch of a car would provide the company with the “much needed diversification away from iPhone.”

However, Bajikar does not expect the contributions from the car to become worthwhile until the iPhone decelerates. Even in a bull case, the FY19 EPS contribution from the car is estimated at $0.32, which is 3 percent of the estimated FY16 EPS.

In addition, Jefferies’ proprietary survey revealed that, excluding China, there were higher conversion from the iOS to the Android. Bajikar expressed concern regarding the intensifying competition in a category that is expected to deliver about 75 percent of the company’s operating profit in the near future.

On the other hand, an Apple Car “would accelerate industry transition to both electric cars and autonomous navigation, and serve as a potentially large new category of demand for Semiconductors, SemiCap equipment, flexible display, batteries, and automotive components, as well as Cloud Services,” Bajikar added.