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

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Business Insider

Apple's CEO, Tim Cook, recently revealed parts of the company's plan for self-driving cars. Rather than actually building autonomous vehicles, Apple seems intent on developing the software that underpins them. But there is still one big problem.

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Apple has been a consumer-technology company since its 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 to clients on Wednesday, Morgan Stanley analyst Adam Jonas laid out several methods for how Apple could 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.

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During Tesla's first-quarter earnings call in May, Morgan Stanley asked 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. Jonas estimates that Apple will spend about $16 billion over the next four years in research and development around the auto industry because of its late entry into the market, much more than the $4 billion he expects Tesla to spend over the same period.

Apple will need the massive amount of data to develop 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 revenue for the firm.

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"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% this year.

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

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