Analysts at Sanford C. Bernstein say Apple could conceivably build an electric, "autonomous" car. But they don't expect the vehicle to hit the market for at least five years.
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Rumors that Apple could be working on an electric vehicle to compete with the likes of Chevrolet and Tesla won't go away. And now analysts have fueled the fire with a report saying that Apple may indeed build a car.
Analysts at investment-research firm Sanford C. Bernstein provided on Tuesday five reasons they believe Apple could at least be considering building a car. Chief among those reasons, said the analysts, led by Toni Sacconaghi, senior analyst at Bernstein, is the pure size of the automotive industry.
"Few addressable markets are sizable enough to impact Apple's revenue -- the watch market in total is only about 60 percent of Apple's annual revenue -- but the automotive market (about $1.1 trillion in revenues) is huge," the analysts wrote in a note to investors. They said that a mere "5 percent share of the global auto market" would equal 25 percent of Apple's estimated revenue for all of 2015.
"Given that the vast majority of Apple's growth in recent years has been driven by the iPhone, and that the high end of the smartphone market is projected to have a tepid growth outlook, the auto market provides a huge, incremental market opportunity that could move the needle for Apple going forward," the analysts wrote to investors.
Rumors have been swirling for months that Apple could be working on an electric car that would compete with Tesla and other prominent automotive companies. In February, Bloomberg cited people said to have knowledge of the matter in reporting that Apple's car team has ballooned to 200 people and includes experts across batteries and robotics. That report said Apple could start production on a car by 2020. The news came after reports said Apple has hired some experts in the car industry, including Johann Jungwirth, CEO of Mercedes-Benz's research and development unit for North America.
Last year, reports surfaced saying Apple held talks to acquire Tesla. Though neither company has confirmed the nature of those discussions, Tesla CEO Elon Musk confirmed he had held talks with Apple.
The idea of Apple acquiring Tesla was an enticing one for those who believe the iPhone maker is getting into cars. Founded in 2003, Tesla has quickly become one of the leading electric-car makers in the world. Central to the company's success has been a recipe Apple has clung to for years -- part performance, part good looks. Tesla has also taken a page out of Apple's book by offering higher-end vehicles at a high-end price. Indeed, depending on the model, Tesla cars have fetched six figures and have sold quite well.
Despite all that and that Apple has the financial resources to acquire Tesla, Musk says he has no interest in selling his company. Musk said in an interview earlier this year that Apple has tried to poach some of his employees, offering them $250,000 signing bonuses and 60 percent salary increases. So far, Tesla, which has stolen its fair share of employees from Apple, has lost "very few" to the iPhone maker.
The Bernstein analysts argue that Tesla could be an inspiration for Apple in the car business. They said Tesla's success was built "on a relatively shoestring budget." Apple, meanwhile, "has nearly limitless financial resources" that could help the company build out its car business and invest the billions a year it takes to be successful in the auto industry.
Beyond that, Bernstein says Apple is one of the few companies that isn't concerned about building a business in an "established" market where companies have been competing for years. The analysts also argue that Apple could come in at the higher-end of margins, earning an operating profit towards 15 percent. Apple might also leverage China manufacturing partners to supply key components for its car.
But reasons for getting into the market are just one piece of the puzzle. What will the car actually offer? The Bernstein analysts seem to agree with previous reports that Apple would build an all-electric vehicle. In addition, it would be driverless and come with premium features that would place it toward the top end of the market.
"We suspect that an Apple car would be both electric and (likely) autonomous, in part because Apple has historically been fairly uncompromising in its product design characteristics, pushing technology progression (sometimes at the expense of consumer convenience)," the analysts wrote.
Opinions are split on whether it would be good for Apple to get into the car business. Carlos Ghosn, CEO at carmaker Nissan, said last month that if Apple jumped into the car market, "obviously it's good news for us," adding that a company outside the industry jumping into the fray is "refreshing."
Former General Motors CEO Dan Akerson, however, sees things differently. Akerson, who left GM in 2014, said in February that Apple shareholders shouldn't "be very happy" about the prospect of their company getting into the car business.
"I would be highly suspect of the long-term prospect of getting into a low-margin, heavy-manufacturing" business, he said.
Regardless of the road Apple chooses, it'll take some time for the company to break into the car industry. The analysts say that Apple likely won't launch its vehicle for at least five years and could take seven or more years before putting it on the road. Apple, the analysts say, "has been very patient in bringing to market its products" and will not change course with a car.
But all of that assumes Apple will indeed launch a car -- something the company hasn't commented on. So at this point, the analysts' comments, which are educated guesses and not based on any conversations with Apple employees or with companies that could be involved in production, should be taken with the proverbial grain of salt.
Apple did not immediately respond to a request for comment.