Apple Inc. (NASDAQ:AAPL) CEO Tim Cook confirmed this week that he is working on a car project. The executive didn’t go into too many details, but that hasn’t stopped speculation. Wall Street is abuzz searching for undervalued stocks that could gain if Apple makes a splash on the world’s roads.
There’s a large number of stocks that could be connected with an iCar, from chip-makers, to manufacturers, to tire sellers. Our list looks at three categories of firms that have some chance of gaining if Apple pushes ahead with its car project.
Car rental stocks: CAR, HTZ
Apple Inc. (NASDAQ:AAPL) is going to need a lot of miles to train its car AI. There’s one group of firms that may be able to offer that service, for a price of course. Car rental companies, like Avis Budget Group Inc. (NASDAQ:CAR) and Hertz Global Holdings, Inc (NYSEQ:HTZ) are well placed to take advantage.
Adam Jonas is a big name among automotive analysts on Wall Street. His latest report on behalf of Morgan Stanley points to the opportunity that car rental firms have with the Apple car. He says that Avis and Hertz are ‘autonomous wish-list plays.’
The idea here is simple, Apple may have to partner with one or more of these firms in future. That means a windfall payment for an industry that’s priced by the value of its used cars. The structure of the hypothetical deal is not predictable, but these firms are worth keeping an eye on.
Chip-makers: TSM, NVDA
If Apple is putting together a full AI program, the firm is likely to look for a custom chip to run its system. Whether Apple builds its own car or licenses its system to another OEM, chips are likely central to the play.
Taiwan Semiconductor Mfg. Co. Ltd. (NYSE:TSM) is a strong contender for this kind of play. The firm is already working on chip-builds for Apple. The relationship and experience are already there.
Buy Apple stock, Short Tesla
This is the most controversial play on this list, and it’s very risky. Adam Jonas, who has studied the autonomous car market more than perhaps anyone, reckons that Tesla Inc (NASDAQ:TSLA) could be in trouble.
“Tesla investors must prepare for serious competition for talent and investment capital in this market,” Jonas wrote in a report on Apple’s moves into the auto world.
The big issue for Tesla may not be competition for customers. It’s likely to be competition for scarce resources. That means, if Silicon Valley doesn’t return to its dirty tricks, that costs are likely to rise quicker than Elon Musk would wish.
That means lower margins at Tesla Inc, possibly permanently. The firm’s share price relies on its ability to build a mass market car with luxury margins. Apple Inc (NASDAQ:AAPL) getting into the business could put a damper on that goal.
Jonas reckons that the firm “will eventually move beyond just software into designing a full car and/or launching a platform for third party services and content over time.”
Shorting any firm is hazardous, but shorting Tesla is doubly so. The firm has bucked a huge amount of short interest in recent years, and many traders have lost their shirts trying to predict Elon Musk’s collapse. Mr. Jonas is still pretty bullish on the Palo Alto car maker, despite the risk he sees.
Most on Wall Street are better off simply betting on Cupertino stock directly. There are, however, some interesting plays in and around automotive tech. Betting against Elon Musk, however, isn’t the safest way to approach that problem.