Apple Inc’s (NASDAQ:AAPL) anticipated entry into the automotive market should see it grab around 8% of the global electric vehicle market in a decade, UBS said as it took a much more bullish view of the iphone maker.
Although Apple is by no means the first mover into battery electric vehicles (BEVs), its significant resources should enable the company to be a “fast follower” in time to participate in the steep portion of the expected surge in consumer adoption in coming years, similar to its launch of the iPhone in 2007, the Swiss bank said.
Based on Apple’s platform strategy and market share in other markets, it should be able to capture at least a 5% share of global BEV units in 10 years, UBS said, with its base-case forecast being for an 8% market share with operating margins approaching 15%.
The combination of its technological capability and its customer retention ability, “indicates customer satisfaction remains high for Apple products [and] suggests Apple’s brand equity should drive an S-curve adoption in the BEV market”, said analyst David Vogt in a note to clients.
Apple has geared up over several years for an entry into the BEV market, investing in self-driving car licenses and LiDAR patents. The company is expected to team up with an established car manufacturer but has seemingly found it difficult to agree terms with several potential partners.
The “real” option value of Apple’s move into the BEV space is worth at least an incremental $14 share, said Vogt.
Furthermore, UBS’s research in the mobile phone market indicates to Vogt that the iPhone faces a more stable long-term demand backdrop, with better average selling prices.
Putting all this together, UBS upgraded Apple to ‘buy’ from ‘neutral’ and raised its share price target to US$142 from US$115.
From a timing perspective, the analyst said this upgrade “should also capture the relative and absolute outperformance that typically accrues to Apple shares 180 days prior to fall iPhone launches”.
He noted that, apart from last year, since 2013 Apple shares have increased 15% in the 6-month window leading up to a September launch, compared to 5% for the S&P 500.
By comparison, six months post launch, Apple’s share price return is nearer to 7% relative to the a 3% return for the S&P 500.