Morgan Stanley Bets on Apple Inc. (AAPL) Gunning for Tesla Inc (TSLA)


In a multi-trillion dollar fighting market for consumers seeking the best autonomous technological artistry, Morgan Stanley believes Apple Inc. (NASDAQ:AAPL) is fiercely bringing its competitive game to the playing field, and Tesla Inc (NASDAQ:TSLA) better watch out.

Ever since CEO Tim Cook confirmed to Bloomberg that Project Titan is real and up-and-coming, as the tech giant intends to prioritize “autonomous systems,” deeming them both “important” and a “core technology.”

Morgan Stanley analyst Adam Jonas weighs in on Tesla with a certain amount of skepticism, not convinced that Tesla’s head start in the race is as untouchable as the electric car giant’s loyal investor base might defend; especially not when Apple is officially fresh on Tesla’s heels. As such, the analyst reiterates an Equal Weight rating on TSLA with a $305 price target, which represents a close to 20% downside from current levels.

Jonas notes, “Many investors we speak with believe Tesla’s lead in miles traveled and data capture is insurmountable. We question this position, particularly at this still very early stage of commercial applications of shared autonomy. It is the working assumption of the Morgan Stanley Global Autos & Shared Mobility team and the Tech Hardware team (led by Katy Huberty) that Apple will pursue a strategy in cars/transport. An addressable market we calculate is worth many trillions of dollars in revenue and many hundreds of billions of consumer hours annually.”

According to TipRanks, which measures analysts’ and bloggers’ success rate based on how their calls perform, four-star analyst Adam Jonas is ranked #472 out of 4,574 analysts. Jonas has a 53% success rate and realizes 11.5% in his yearly returns. When recommending TSLA, Jonas garners 31.1% in average profits on the stock.

From the eyes of Morgan Stanley analyst Kathryn Huberty, this is only just the beginning, as she predicts the tech giant will eventually traverse past the software realm, as Apple knows how to spin a win best with a fluid three-move combo: hardware, software, and platform synthesis. As such, the analyst reiterates an Overweight rating on AAPL with a price target of $177, which represents a just under 22% increase from where the stock is currently.

Of course, this kind of powerful merging of market strengths will not happen overnight, the analyst acknowledges, and rivalry in a self-driving car maker world will be cutthroat. Yet, Huberty’s odds are on Apple, as she wagers, “From the Apple perspective, core self-driving software is likely the first step in its autonomous pursuits, and we believe Apple will eventually move beyond just software into designing a full car and/or launching a platform for third party services and content over time. This is because Apple argues it is most successful when it vertically integrates in a market, controlling the hardware and software and creating a platform (e.g. iOS + App Store + iTunes). However, these pursuits will take time and investment dollars and competition will be fierce. We forecast Apple R&D spend growing to ~$17B by 2020, up from $10B in 2016 (14% CAGR). This compares favorably to incremental spend at other technology companies with a vested interest in shared mobility. On average, Google, Tesla, Facebook and Baidu will spend an incremental $11B over the next four years versus Apple’s.”

True, if the tech giant’s intent to scout the pathway for autonomous driving systems is deliberate and determined, “it will have to harvest real-world miles on public roads in very large quantities […],” contends Huberty, who notes this will have to happen sooner rather than later. However, with various channels for Apple to tackle its “core technology” pursuits, between ride-sharing, car rental prospects, OEM collaborations, machine learning, or a sequence of these options, Tesla investors might be screeching their wheels coming down the pike.

As usual, we like to include the analyst’s track record when reporting on new analyst notes to give a perspective on the effect it has on stock performance. According to TipRanks, five-star analyst Kathryn Huberty is ranked #350 out of 4,574 analysts. Huberty has a 60% success rate and earns 12.2% in her annual returns. When recommending AAPL, Huberty yields 23.8% in average profits on the stock.