Date Published: 2017-06-16
Written by Ophir Gottlieb
* This is a snippet from a CML Pro dossier originally published on 6-14-2017.
Tim Cook revealed that The Apple (NASDAQ:AAPL) Car is coming and that there are three distinct markets it will serve.
Apple Inc is a Top Pick added for $104.15 in January of 2016.
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The bullish thesis for this company is so steeped in the guts of technology that we can't cover it all here, but for the full rundown we direct to the CML Pro dossier:
Apple's Growth Will Humiliate Skeptics
Apple Inc CEO Tim Cook, finally, went on the record with Bloomberg and divulged that the tech giant is in fact working on self-driving car technology. Further, we believe Apple will take an active stance in all three markets Cook addressed: self-driving software, electric vehicle manufacturing, and ride-sharing. That makes for a several trillion-dollar total addressable market (TAM) according to Morgan Stanley.
This is a long read so we'll motivate it ever further by taking a step back in history to start, remembering that none other than Tesla Inc (NASDAQ:TSLA). CEO Elon Musk said on January 11th, 2016 that Apple's foray into the car market was "an open secret."
Musk went further to say that "Apple will probably make a compelling electric car."
The Apple car story began with the secretive process developed under the name "Project Titan," and while Apple had not officially announced it, there was enough circumstantial evidence to trust the leaks that a car was in the works.
Of course, CML Pro members knew that a couple of years ago, Apple was in fact not just getting into the technology behind self-driving cars from the software side, but also from the actual automobile manufacturing side due to contact we had with a former Apple executive that confirmed the 'car.'
But we are not 'a couple of years ago' anymore, we are today, and there is still a lack of clarity as to what Apple is doing in the space. Let's review what Tim Cook said, and then we'll talk about the total addressable market and the possibilities for Apple with respect to products.
Tim Cook Says
Apple CEO Tim Cook noted that the revolution coming in the automobile space is an unusual coincidence of three separate trends: (1) electric vehicles, (2) self-driving technology and (3) ride-sharing.
Further, Cook said out loud that Apple was actively working on an artificial intelligence-centric project. That's what we know. Let's start with the total addressable markets (TAM).
Electric Vehicles (EV)
The size of the global market for electric vehicles in 2019 is projected to reach $272 billion. Here is a nice chart comparing 2012 to 2019 from our friends at Statista.
That represents a 19% compounded annual growth rate through 2019, starting in 2012. But, the real measure comes from the tiny share that the EV market claims:
A part of this growth has been spurred by falling battery costs:
Source: International Energy Agency (IEA)
But that's just cars - it goes much further. We get this from the Global EV Outlook 2016 produced by the International Energy Agency (IEA).
Various scenarios of growth were also presented by the IEA:
Source: International Energy Agency (IEA)
The Point: The EV market is going to grow rapidly, and it might grow faster than 'rapidly.'We note this before we move forward because Apple, unlike any of the other tech giants, actually "makes things" at a mass scale. Alphabet (NASDAQ:GOOGL), Amazon (NASDAQ:AMZN) and Facebook (NASDAQ:FB) do not.
Self-driving Featured Cars
We share this image regularly, and we will do so again for completeness:
That's 134% compounded annual growth for the next five years in the self-driving featured car space. If that 10 million vehicle number is hot by 2020, and we assume a $30,000 average price, that alone would be $300 billion as a TAM.We will step into Apple's move below. Finally, we move to ride sharing.
The ride-sharing market is currently dominated by Uber in the United States, where it has about 85% market share. In larger cities where Uber and Lyft compete, estimates have Uber at 75%-80% of the market. Here is the forecasted growth for all ride-sharing in selected countries:
That's a $32 billion market growing to over $70 billion. But the real addressable market here for Apple is not just about dollars, but rather penetration.
Within five years, we could be looking at a world where more than 1 in 8 people uses a ride-sharing service. Even further, the average revenue per user (ARPU) is growing:
Total Addressable Market (TAM)
The total addressable market, or really, markets, get into the trillions of dollars here, so if you're looking for a place for Apple to grow, these are it. As an aside, Apple is also delving deep into Healthcare Technology and Augmented Reality.
We can see that Tim Cook is, of course, quite accurate in naming three distinct yet concurrent disruptions coming to the world of driving. The question surrounds which of the three Apple will pursue, and how. We do note some rather obvious moves by the company of late. On November 22nd, Apple wrote a letter to the National Highway Traffic Safety Administration (NHTSA). Here are some snippets before we dive deep (emphasis added):
And, Apple went further:
But we can just look back two months to see this news: Apple Gets Permit to Test Self-Driving Cars in California:
Since Apple already has its CarPlay product, we feel comfortable with the idea that Apple will in fact build a self-driving software platform. For the record, here is how Apple describes CarPlay as of today:
The main players in this space, without an actual car, are Alphabet's Waymo, Nvidia (NASDAQ:NVDA) and everyone else, the Intel (NASDAQ:INTC)-Mobileye combination (maybe) and if we include actual vehicle makers, then we must include Tesla.
A Physical Car
Now, the real question becomes if Apple will build a car, and we feel rather strongly, though we are out on a limb, that it will. This may be an in-house project, but more likely, it will be a combined effort with an established auto-maker.
We do have a leak from an insider that at one point Apple was building a car on its own - or at least had its sights set on that endeavor. Whether that has changed over the last two years or not is up for debate.
But, the idea of teaming up with a manufacturer makes a lot of sense. Rumors swirled around BMW for the longest time, but it appears those talks have cooled. In either case, naming which manufacturer isn't the issue, it's if there will be one. Our guess is yes, which means Apple would have both an entire self-driving car platform, and a co-branded Apple Car. Said differently, Apple would challenge everyone, from Tesla and Mercedes to Alphabet, and Intel-Mobileye. The main players in the actual manufacturing of self-driving and electric cars are Tesla, and soon to follow dozens of large scale auto manufacturers, especially Mercedes-Benz, Honda together with Alphabet, and General Motors together with Lyft.
This is where we feel like the opportunity is wildly misunderstood. We believe whole-heartedly that Apple will be getting into the ride-sharing world and that's exactly why Tim Cook noted it in his interview with Bloomberg.
Remember, Apple made a one billion investment in Didi, which is 'China's Uber' (but bigger).
Even further, and widely under reported, in a patent application we found submitted to the United States Patent and Trademark office (USPTO) surrounding, of all things, social media, Apple quietly, but obviously, put in a reference to ride-sharing through a new social network driven by iPhone owners.
In our dossier "The Secret's Out: Apple is Creating a Social Network," we noted this rendering:
Apple may be patenting the ability to integrate not only your location, but your purchases, your downloads, your words, indeed, all of your "sensor readings" into an omnibus algorithm to understand all things about the way their users interact and that clearly includes ride-sharing.
The main players in the ride-sharing world are Uber in the United States, together with Lyft, and in China it's Didi.
Tim Cook let the "open secret" out to Bloomberg and went further to name three distinct areas of disruption. We have no reason to believe that Apple will not compete in all three, and we have further evidence from patent filings, prior investments and current products that lend to support our conclusion.
The risks are aplenty in a new market and the competition will be fierce. But, when it comes down to it, there is no company in the world, as of right now, that makes high end consumer electronics at the scale of Apple, nor is there a company with more financial resources at its disposal.
We maintain our Top Pick on Apple Inc., even though we see the potential for substantial market volatility in the short term.
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Thanks for reading, friends.
The author is long shares of Apple Inc. at the time of this writing.
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