Apple’s Rumored EV Project Is A True Threat To Tesla’s Hype Machine
Is Apple AAPL after Tesla’s market…or its market cap? In its last four reported quarters combined Tesla reported $28.176 billion of revenues. So, with cash almost equaling net debt as of September 30th, and a share count (post-recent offering) of about 950 million, Tesla has a market capitalization of $593 billion, which would also equal its enterprise value. That figure divided by the trailing revenue rate of $28 billion gives an astonishing 21x EV/revenues on a trailing basis. If Apple, which reported $274.5 billion revenues for its fiscal year ended September 2020, were accorded such a multiple…wow. Reducing Apple;s $2.4 trillion market cap to its enterprise value by subtracting its $93 billion of net cash and dividing by 17.8 billion shares that were outstanding at 9/30 yields a trailing EV/revenue multiple for Apple of 8.4x
So, at Tesla’s multiple, AAPL’s share price would be $335 and the company would be worth about $5.9 trillion net of net cash. The figures boggle the mind.
Reuters yesterday reported that Apple’s long-rumored Project Titan car project was back on again with a projected start date of 2024. The markets, as usual in 2020, overreacted. TSLA TSLA shares were sold off and Apple shares were bid, but let’s not forget about the “legacy” automakers. As Tesla strains to stuff delivery channels at the end of the fourth quarter, as the company does every quarter, those poor, old-fashioned car markers simply make high-quality cars. Or most of them do. Tesla is currently below Land Rover in the J.D. Power rankings as and its Models S and X recently lost their recommended status from Consumer Reports.
So, what does Apple have that carmakers would need? Not manufacturing expertise. Except for a manufacturing facility outside Austin that makes extremely-high end Mac desktops, Apple doesn’t make any of its products. Foxconn makes the iPhone for Apple on a contract basis. So, Apple only offers something that the credulous buffoons who “follow” Tesla on the sell-side attempt to goose their TSLA price targets with: economic value attributed to ’’connectivity.”
This is jaw-droppingly stupid. NO one is EVER going to pay for connectivity in a car because we already have it. Your iPhone or Android smartphone gives you the ability to navigate, recreate and conversate (hopefully safely) on a hands-free, seamless basis in virtually every car made on planet Earth in 2020. So, why would anyone pay extra for, as one particularly credulous buffoon put it while posting an astronomical TSLA price target “the internet of the car?”
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No one will. The internet of the car already exists, and you already own it. It’s your phone.
Of course, there are higher-level uses for connected cars when autonomous driving and vehicle fleet interactions (V2X) are considered. These would cut down on traffic jams and reduce accidents, in theory, because computers are smarter than people. But that market is still in its pre-revenue phase, and despite what idiots who pump TSLA shares would have you believe, Tesla is not even oint he Top 5 globally. Alphabet’s Waymo, Amazon AMZN ’s Zoox, and China’s Didi Chuxing and Baisu are light years ahead of Tesla’s autonomous technology. UBER’s UBER self-driving project was basically an epic fail, but my Silicon Valley contacts tell me some useful tech was developed,and that will be fully utilized now that unit has been bought by Aurora.
So, the companies that could benefit—several years down the road—from value created by a truly connected car—are not Apple or Tesla. The so-called legacy automakers are also hard at work, and I would note GM’s Cruise and Volkswagen’s Project Artemis as very interesting autonomous vehicle plays.
But Tesla doesn’t have it. Tesla’s “Full Self-Driving” vaporware has been foisted on unsuspecting consumers to flatter Tesla’;s revenue line, Musk will tweet out “FSD updates” as every quarter comes to a close simply so Tesla can recognize more of the revenues from customer FSD deposits on a percentage-of-completion basis. It’s a joke to folks in the auto industry.
But Apple’s Titanic (pardon the pun) balance sheet and technical know-how are certainly no joke. If Apple does indeed have a better BEV mousetrap with the “monocell” battery architecture referenced in the Reuters article, then Apple would join the 50 other companies that fill my email inbox on a daily basis with press releases touting a revolutionary EV battery technology. Musk’s embarrassing Battery Day performance proves that Tesla doesn’t have it, and the company’s switch to CATL’s LFP technology for made-in-China Model 3s (which reportedly performs very poorly in cold weather) shows that Tesla’s batteries are commoditized, just like the ones VW sources from LG Chem for the ID.3 and ID.4.
So, Apple has some smart folks. But virtually none of them are assembly workers. Apple would likely need an assembly partner—the Reuters article mentioned Magna International, one of my old companies from my days as a North American auto parts analyst—and that is where the real value-added is difficult to determine. Apple and Foxconn have a symbiotic relationship, while Tesla has broken up with virtually every partner it has ever worked with, save for Panasonic in Nevada (but, pointedly, not in China anymore.)
So, TIm Cook plays well with others, and Elon’s massive ego would seem to hinder him from doing so. Don;t count out Apple in the race for truly connected electric cars. But also, if you are an Apple shareholder, don’t count on any benefits from Project Titan hitting AAPL’s incredibly fat bottom line for the next five years. It’s fun to speculate, and that’s what seemingly 99% of stock trading is in 2020. Be careful, though, that you don’t miss the real fundamental drivers of the car industry and the companies that generate massive free cash flow by capturing those drivers. They may be joined by a new entrant or two, but “legacy” automakers are not going anywhere any time soon.