Apple as a transportation company? It’s possible, analyst says

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Updated on Sep 26, 2024

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Apple is reportedly looking to manufacture cars in the coming years.
Tesla required a mere $100 million in R&D to develop its Model S car.
Apple likely had no interest in acquiring Tesla as doing so is not its part of its DNA.

Reports of iPhone maker Apple Inc. (NASDAQ: AAPL) branching out in a big way to manufacture cars isn’t a far fetched theory, according to Bernstein analyst Toni Sacconaghi.

Apple has the resources

Developing an entirely new product from scratch isn’t as complicated as it seems, Sacconaghi said on CNBC’s “Squawk Box.” Most notably, Tesla Inc (NASDAQ: TSLA) developed its Model S sedan with an R&D budget of just $100 million. More specific to Apple, the company created the iPhone from scratch with just 120 engineers working on the project.

“I don’t think it’s a general rule to say that developing a breakthrough product requires incredible resources,” the analyst said. “It requires focused resources and ingenuity.”

Apple has certainly proven in the past it has the necessary tools to innovate. Of course, the company has a war chest of cash to finance whatever projects it wants to.

Acquiring Tesla inconsistent with Apple’s history

Tesla CEO Elon Musk acknowledged publicly this week he was looking to sell his company to Apple in 2018. In hindsight, Apple missed out on a fantastic opportunity as Tesla was a fraction of its current size two years ago.

But an acquisition of Tesla or any large company is not part of Apple’s DNA, Wall Street Journal reporter Tim Higgins also said on “Squawk Box.” Apple’s largest acquisition on record was Beats for around $3 billion so Apple would have needed to fork over 20 times the amount for a Tesla acquisition two years ago.

Apple will face problems

Apple’s ambitions to create a car would still face a set of challenges, Higgins said. Tesla managed to survive over the years but 2018 was a period of turbulence for the electric automaker.

Tesla was in “such dire straits” two years ago because it cost so much money to ramp up production of its vehicles. Tesla ran into “problem after problem” and blaming it on its young age is a mistake.

“Even experienced automakers such as Ford Motor Company (NYSE: F) and General Motors Company (NYSE: GM) struggle with the launch of new products,” he said. “That will be an issue for Apple even with all of its strengths.”

Apple versus Tesla stock

Between Apple and Tesla, the current electric automaker’s stock carries a “more questionable” valuation after gaining 700% throughout 2020, Sacconaghi said. The stock gained 70% alone since it was confirmed as an S&P 500 constituent.

“Relative to the two, we are more cautious on Tesla,” the analyst said.