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Apple will maintain bumper to bumper control of 'Apple Car' project, says Morgan Stanley

By Mike Peterson

When it comes to the long-running Apple Car project, Morgan Stanley analyst Katy Huberty expects Apple to invest significantly in researching and developing a "vertically integrated solution."

An 'Apple Car' concept rendering by Motortrend.

In a research note focused on Tesla seen by AppleInsider, analyst Adam Jonas recruited Huberty to compare and contrast Apple to the Palo Alto automaker. While most of the research was focused on Tesla's position within the technology and automotive industries, Huberty did provide several tidbits about Apple's work on vehicular tech.

For one, Huberty said that Morgan Stanley expects Apple to spend nearly $19 billion on Research & Development this year, and compared that number to the $80 to $100 billion spent on R&D across the entire auto industry. That massive influx into R&D is one reason why Apple and other tech companies are probably going to be "disruptive over time" in the car market.

Huberty adds that Apple see vehicular tech as a "large market where (it) can contribute to a better solution," similar to how it views health and financial technologies. When it comes to the end goal, the analyst forecasts that Apple's entry into vehicular tech will be a vertically integrated solution.

"The end game can't just be a more advanced version of CarPlay in partnership with other auto makers," Huberty said. "They need to control the design, the guts and the experiences and services on top of the platform."

Asked about whether Apple and Tesla would partner up, Hubery said that they're likely to remain competitors, since, eventually, Apple's ambitions seem to hint at it releasing a competing product to the Tesla.

Apple has long been rumored to be developing an "Apple Car," and though it isn't clear what form it could take, more recent rumors and reports suggest that it'll be a physical Apple-produced vehicle.

Huberty also spoke about Apple's transition from a "seller of devices" to more of a services-based company.

For example, Apple began de-emphasizing unit shipments just as Services started to become more of a meaningful contributor to revenue growth. The analyst added that investors have begun to appreciate the "subscription nature" of iPhone repeat purchases, as well as the attach rate of new services and products.

"In other words, Apple's financial model is behaving less like a transactional hardware business and more like a digital service."

Morgan Stanley maintained its $326 price target for AAPL, based on an enterprise value-to-sales (EV/Sales) multiple of 3.7x on mature hardware, 3.8x on Wearables, Home and Accessories, and 7.1x on Services. Together, that results in a 4.4x FY21 EV/Sales multiple and a 21.8x target FY21 price-to-earnings ratio.

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