There’s not a day goes by that I don’t see electric vehicles (EVs) in the news nowadays. Yesterday, it was no other than Apple (NYSE: AAPL) and its plans to debut a fully autonomous EV as soon as 2025. Apple is currently the most valuable company in the world, but even for a company this size, it’s quite an ambitious plan.
Let’s take a closer look at Apple’s decision to launch a fully autonomous EV, and if I should buy the shares.
Apple plans an EV
It was Bloomberg that first broke the news on AAPL’s accelerating plans to launch a fully autonomous EV. With a whole host of companies developing EVs today, including Tesla and now Rivian, Apple is perhaps trying to muscle into a crowded market.
But it’s the promise of a fully autonomous EV that caught the eye of investors yesterday. After the news broke, the share price rallied 2.4% to over $157.
Apple plans to have no steering wheel or pedals, with an interior designed around hands-free operation. Targeting a launch date of 2025 is ambitious, and earlier than initially thought.
This sounds promising, although at the same time, maybe too difficult in the timescale. Tesla has attempted to develop its own self-driving EVs to mixed success. So if Tesla, a company dedicated to developing EVs, hasn’t been able to develop fully autonomous technology, then Apple may also struggle.
Apple’s current financials
But before I invest in any company, I need to understand the financials and potential growth.
AAPL is a truly huge company with a market value north of $2.5trn. Its revenue forecast for this year is $379bn and profit of $92.5bn. Growth is uninspiring though, with revenue estimated to increase by only 3.6%.
The shares are valued on a price-to-earnings ratio of 28, which I consider high for such a tepid revenue growth forecast. There may already be some success over Apple’s potential EV priced into the shares.
Should I invest?
AAPL may just win the race to be the first company that commercialises a fully autonomous EV. Indeed, it’s been developing its own computer chip that will power the driving system, and road testing should commence soon.
However, the team has experienced quite some churn over recent years, suggesting things haven’t always gone to plan. The current leader of the EV project, Kevin Lynch, was appointed after his role as a software executive working on the Apple Watch. This product has largely been a success for Apple, but it means it’s hugely ambitious EV plans are being led by an executive without direct vehicle experience.
The EV market is also a divergence from Apple’s core hardware and software markets. The company achieved a gross margin of 42% last year, although the largest EV maker, Tesla, only managed 21%. Therefore, the EV market might not be as profitable for Apple as its current core businesses are. There is also likely considerable investment to come, which will be a cash drag on company financials.
Overall, I think this is an exciting area. But as an investor, I’m staying away for now. AAPL’s shares aren’t exactly cheap to start with, and I think this project could be challenging to meet before the 2025 target. I’ll keep watching things develop before I buy the stock.
