Updates
Later, 12:40 p.m. CT: as you go through the long post below, keep these three companies in mind --
- Apple, of course
- mostly a design, marketing, and retail company
- outsources everything else
- Foxconn:
- as far as I know, Foxconn is joined at Apple's hip, building the actual hardware, the thousands of workers on assembly lines building smart phones and computers
- TSMC (Taiwan Manufacturing Semiconductor Company; publicly traded as TSM):
- a semiconductor chip foundry, builds things; as far as I know, has exclusive rights to actually build / put together Apple products (smart phone, computers)
- what's missing? An automotive factory and an automotive partner. My hunch: the GM factory at Lordstown, Ohio, where GM and Foxconn are involved in a joint venture.
Original Post
Up until early last week, AAPL had been in a trading range between $140 and $150.
AAPL has lagged the general market this past year and has really, really lagged the NASDAQ and the tech sector this past year.
In short, AAPL has been a real disappointment this past year.
The problem is that analysts have difficult valuing this company. Apple never provides guidance, is very, very secretive about future projects, and is often seen as simply a smart phone company.
Anyone paying attention knew that Apple was much more than a smart phone company. But let's agree to disagree that in addition to smart phones, Apple was huge in the computer sector: desktops, laptops, and tablets. Revenue from services has been growing significantly but few analysts seemed to bother with this Apple division.
That all changed a few months ago when Apple announced its M1 chip. This was not an "evolution" in the semiconductor / chip industry; it was a revolution. At that moment, Apple became a "chip" company and needed to be evaluated against such chip companies as Intel, Nvidia, AMD, among many others.
Intel, by the way, has fallen so far that many analysts don't see INTC recovering any time soon. Shares my ride the coattails of other chip companies, but Intel has huge challenges.
The "chip" sector has been on fire this pas year, but AAPL, not seen as a "chip" company did not participate in that rally.
Perhaps a few analysts recognized the importance of the M1 chip but, in general, the market did not.
It's important to know what business a company is in when attempting to place a value on a company.
The market has been preoccupied with supply chain shortages and analysts have warned against a poor holiday quarter predicting that Apple would not be able to deliver as many smartphone as they would without the supply chain problems.
Be that as it may, AAPL meandered along.
Meanwhile, during the past month or so, there has been incredible excitement in the electronic vehicle / autonomous vehicle industry and that sector has literally been on fire. By market cap, Tesla, Rivian, and Lucid have crushed GM, Ford, VW (largest car manufacturer in the world), Toyota, Honda, just to name the "big ones."
Behind the scenes, for several years, there have been stories that Apple was also working on an autonomous vehicle, but that story fell off everyone's radar scope when Apple broke off talks with Kia as an automotive partner, and perhaps others. I've long forgotten which companies have been rumored to be working with Apple.
But that all changed late last week when Bloomberg published a story suggesting that Apple would market / deliver its first autonomous vehicle in calendar year 2025.
Tim Cook, in a CNBC interview last Friday (?) or thereabouts, refused to comment on any future projects with which Apple might be involved.
With the publication of that Bloomberg article AAPL surged and continues to surge today, Monday, November 22, 2021.
It's important to know what business a company is in when attempting to place a value on a company.
If Apple continues to be valued as a smart phone company, its share price will meander in the $150-trading range in the short term.
If valued as a chip company, its share price will appreciate significantly when / if Apple were to license its chip technology. Unlikely to happen.
But, if Apple is valued as a company making autonomous vehicles (AVs) / electric vehicles (EVs), all bets are off. AAPL could reach heights previously unimaginable.
There are three components to delivering AVs / EVs:
- chips
- design
- manufacturing
- software
- hardware (the car itself)
These could perhaps better divided as:
- chips, design
- chips, manufacturing
- the car itself
Chips, design and manufacturing, two different aspects:
Apple designs chips but does not manufacture chips. Apple outsources the manufacturing of those chips to "chip foundries." I believe Apple's M1 chips are made exclusively at the foundry in Taiwan known as the Taiwan Semiconductor Manufacturing Company, which trades publicly as TSM.
Apple refers to these chips generically as their "Silicon Valley" chip or something to that effect. The revolutionary M1 was the first iteration; M2 is already being produced, and I believe, they are already talking about an M3 chip.
TSM is in talks to build new foundries in Japan, well aware of the Chinese-Taiwan risk. Those foundries will be up and running by this time next year. Japan, the country, will share in funding the new TSM foundries.
Software: tied in with the "design" story described above.
Finally, hardware, the car itself. There's no way Apple could build an automobile factory from scratch to meet the 2025 deadline. In addition. Apple is not known to manufacture its own hardware. Again, they design their hardware, the car in this case, and then outsource the work.
There is no way another company could build a factory from scratch to meet Apple's 2025 deadline.
It turns out that there is already an old GM factory in Lordstown, Ohio, locked and loaded to manufacture Apple automobiles. See this link.
Bottom line:
- if accurate, that Apple will deliver an AV / EV during calendar year 2025, it means:
- the company already has the design in place;
- it needs to announce a manufacturing partner;
- it's possible the announcement could be delayed until early, very early, 2023, but that would be cutting it very, very close to get a car delivered sometime in 2025
- in addition, even is Apple were to try to keep this "secret," rumors will certainly be heard much earlier than the formal announcement
- my hunch: Apple will make the formal announcement at the end of 2Q22, around June, 2022
- watch the shares of AAPL after the first of the year; share price will be a leading indicator -- as they say
- partner:
- Apple is not know for "cheap" products. Although it was exciting to hear that Hyundai and/or Kia were involved with talks with Apple at one time, both would seem to be "beneath Apple's heritage" to partner with either.
- at the other end of the continuum, Porsche, BMW, Daimler Benz -- possible, but they also don't seem to fit for other reasons
- the Lordstown, Ohio, factory: Foxconn (joined with Apple at the hips) and GM have a joint venture at this factory. In other words, locked and loaded.
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