Analysts have identified a number of reasons Apple Inc. (NASDAQ:AAPL) may enter car business, with one of the reasons being the company’s ability to reinvent markets. The vast resources that Apple has and its focus on outstanding designs and quality are also other reasons the company might plunge into the automotive industry, according to the analysts at Sanford C. Bernstein. Possibilities that Apple could enter car market are getting increasingly clearer, especially considering the company’s desire for new growth opportunities.
$1 trillion market opportunity
Apple Inc. (NASDAQ:AAPL) could be driven into the auto business because of the size of the addressable market. At nearly $1.1 trillion of annual revenue, Apple could generate 25% of its projected 2015 revenue by only capturing 5% of the automotive market.
Apple has mostly depended on iPhone sales for growth, but the market for premium smartphones is cooling, meaning that the company must look for new growth. The huge size of the auto industry means that Apple can draw incremental revenue to maintain its growth by investing in car business.
While smartwatch seems to be promising, with Apple noting more than 1 million preorders on the first day, the whole wearable market is just about 60% of Apple’s annual revenue, which means that impact from the segment isn’t huge enough.
Ability to reinvent the market
Apple Inc. (NASDAQ:AAPL) knows how to reinvent the market, which is possible if the company decides to enter car business. The company sets itself apart from the competition because of its aggressive focus on design and quality.
Concerns that Apple may fumble in the car business seem unfounded because some people feared when the company plunged into the smartphone business with iPhone in 2007.
Tesla inspiration
Despite its relatively small budget, Tesla Motors Inc (NASDAQ:TSLA), which builds cars that look and feel like iPhones, has been able to give established car manufacturers a run for their money in the luxury car market. Apple Inc. (NASDAQ:AAPL) has nearly $188 billion in the bank, enough to let it do whatever it desires to succeed in the auto business.
Profit margins
Profit margins in the mass auto market may not be great, but margins in the premium market are huge and Apple can take advantage of its outstanding quality and design to drive more profits in the market. Additionally, the luxury auto market is expected to grow at faster rate than the mass market over the next five years.
Presence in China
Chinese auto manufacturing capacity is poised for massive development. The market is also the battling ground for global automakers. Apple Inc. (NASDAQ:AAPL) appears to have an advantage in the battle for China because it already has a significant presence there. The company sources most of its product components and manufacturing in China.
