MORGAN STANLEY: Apple's biggest autonomous-car problem could be solved with a Tesla partnership

Seth Archer

Jun 14, 2017, 20:22 IST

Business Insider

Apple's CEO, Tim Cook, recently revealed parts of the company's plan for self-driving cars. But there is still one big problem.

Apple has been a consumer technology company since it's inception, and it is relatively late to the automotive industry. Competitors like Tesla, Waymo and even Uber have been gathering data about how people drive for years.

If Apple is going to compete, it needs data.

In a note sent out to clients on Wednesday, Morgan Stanley analyst Adam Jonas laid out several methods for how Apple can make up for lost time.

One of the solutions he explored was an acquisition or partnership with Tesla, which has been producing and gathering data since its inception in 2003.

Morgan Stanley asked Tesla CEO Elon Musk about the possibility of an Apple partnership and received the following, vague answer:

"I don't think they want to have that conversation, there's not been any indication that they do," Musk said on the company's earnings call. "But obviously, Apple's company makes some great product ... I use their phone and their laptop, it's cool. I don't know what they're going to do on the car front."

Partnering with an established firm isn't the only way to gather the piles of data Apple will need. It could start gathering its own data, but that could be much more costly. Due to its late entry into the market, Apple will spend about $16 billion over the next four years in research and development around the auto industry, much more than the $4 billion that Tesla is expected to spend, Jonas says.

Apple will need the massive amount of data in order to train their artificial intelligence and self-driving algorithms, according to Jonas. If the company is able to gather the data and create a competitive product, it could mean big revenues for the firm.

"Each 1% share of the miles market at $1/mile (including the transport service and any related/ancillary revenue) is worth $200bn in revenue and potentially tens of billions of pretax profit," Jonas wrote.

Morgan Stanley has a price target of $177 for Apple, 20% higher than its current price of $147.48. Apple shares are up 26.26% so far this year.

While Tesla is up 76.89% so far this year, Morgan Stanley thinks its headed lower. The firm's price target is 19.8% lower than the current price of $380.31.