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5 Reasons Apple May Build A Car

5 Reasons Apple May Build A Car

Bernstein on Tuesday issued a company note on Apple Inc. (NASDAQ: AAPL) as recent reports have speculated that Apple is potentially looking to build a car. The firm rates Apple as Outperform with a $135 price target.

Analysts A.M. Sacconaghi, Max Warburton and Eric Garfunkel wrote, "So are we convinced Apple is making a car? No, in part because Apple is typically very patient in bringing a product to market, and will ultimately only do so if it believes it has an offering that is truly distinctive...we believe that incremental gains are likely needed in batteries, autonomous driving, manufacturing capacity, and recharge networks before Apple can bring a truly distinctive product to market.

"That said, Apple brings brand, design expertise, market clout, and unparalleled deep pockets and–having done more research on the car industry and Tesla – we are more optimistic about the possibility of a car than we were initially."

Related Link: Is There A Realistic Timeline For Apple's Car?

The analysts gave five reasons why Apple may be planning to design a car in the future.

1. Growth opportunities: The high-end smartphone market is expected to slow in growth while the automobile market provides a significant opportunity, over $1 trillion in annual sales, for Apple to continue to expand.

2. Apple is unfazed by entering established markets: Apple's product philosophy has always been to make the best products that are designed beautifully and work great. Its research and development budget is one of the biggest in the world that Apple can decide to use to design a car.

3. Limitless financial resources: Companies such as Tesla Motors Inc (NASDAQ: TSLA) have shown that startup auto companies can be successful against more established brands as long as design and quality are top notch. Apple has over $188 billion in cash, thus can afford to hire the best engineers and use the best materials in the world.

4. Apple has enjoyed historically high margins: This has been due to brand loyalty and product design. While auto industry margins are declining, Apple has the opportunity to take market share from the auto industry by applying its same philosophy for building iPhones to building cars, taking a disproportionate share of profits.

5. Car manufacturing capacity is likely to develop in China: Apple has the potential to use its network of partners/suppliers to position itself nicely in the manufacturing environment. Because analysts believe that Apple's car will be fully electric, it will be important for Apple to build factories that create battery packs in large quantities.

Latest Ratings for AAPL

Feb 2021RBC CapitalAssumesOutperform
Jan 2021DA DavidsonMaintainsBuy
Jan 2021Deutsche BankMaintainsBuy

View More Analyst Ratings for AAPL
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Posted-In: A.M. Sacconaghi Bernstein Eric Garfunkel Max WarburtonAnalyst Color Analyst Ratings Tech Best of Benzinga

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