Posted by Max A. Cherney on Tuesday, December 29, 2020
Don't Buy Shares of Potential Apple Car Suppliers -- Barrons.com
3:03 PM ET 12/28/20 | Dow Jones
By Max A. Cherney
Days after a report surfaced about Apple resurrecting its effort to build a car, several sell-side analysts continue to ponder what, if any, benefit such an endeavor would bring to the company, and the stocks of its suppliers.
Investors have reacted positively to the news, and have bid up Apple (ticker: AAPL) stock 3.3% to $136.25 in early afternoon trading Monday. If shares remain above Sept. 1's close of $134.18, it will mark a record close for the stock.
TFI Asset Management analyst Ming-Chi Kuo wrote in a note to clients Sunday that investors should take a cautious approach when considering investing in stocks that may appear to benefit from a potential Apple automobile. Kuo wrote that because the launch may be as far off as 2027, it's unlikely that specifications for the machine will be finalized for another three to five years. That far-off launch should also give investors a reason to pause and consider how changes to eclectic vehicle and autonomous driving technology many impact it.
The excitement around the potential new product should also be dampened because Apple, similar to other businesses, isn't always successful when it launches a new product, Kuo wrote. Its smart speaker has not been the success of rival Amazon.com (AMZN) and its various Alexa voice assistant-powered products, for example. Apple has suspended development of new HomePod and Homepod Mini products.
Kuo argued that should Apple want to succeed in the automotive market, the key will be big data and artificial intelligence, because of the need to include assisted or autonomous driving technology. That's a big departure from Apple's current design chops.
Here at Barron's we have taken a negative view of Apple getting into the car-making business. The margins aren't good, it's very complicated and expensive to make, and its expertise around device batteries won't immediately translate into a sure win with autos. But that's not going to stop the rumors from flowing.
Goldman Sachs analyst Rod Hall did some math about Apple's entrance into the car business, and also concluded that it would be a low-profit enterprise. Hall wrote that Apple may be eyeing cars because people will likely spend a lot of time in self-driving vehicles in the future, and Apple is keenly interested in services, and add-on products, such as Apple TV.
Apple stock has returned 87% this year, as the Dow Jones Industrial Average returned 8.3%. Apple was the best-performing stock in the Dow this year, and the most active stock in the S&P 500 index in Monday trading.
Write to Max A. Cherney at email@example.com
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