Morgan Stanley analyst Katy Hubery released some interesting evaluations about Apple's (NASDAQ:AAPL) research and development spending last week. She said in an investor note that over the past three years Apple had increased its R&D spending by $4.7 billion, and that the cash is likely going to the company's automotive ambitions.
Apple doesn't break out its R&D spending, but Huberty bases part of the prediction on Apple's recent $1 billion investment in the China based ride-hailing company Didi Chuxing.
If Apple has indeed spent nearly $5 billion in automotive technology over the past few years, it would dwarf the $192 million the top 14 automakers have spent in additional R&D spending over the same period (the carmakers spent more than Apple in total, but only increased their spending by less than $200 million since 2013).
So why does this matter?
Second, it indicates that Apple is very committed to making the automotive market one of its key revenue segments, if not its top one.
Apple is betting on the $2.6 trillion "shared mobility" market -- according to Huberty and her team -- in which the company will offer cars-as-a-service, rather than selling them directly to individual consumers.
Herberty wrote that, "With Apple outspending the major auto OEMs on this opportunity, we believe Apple could gain at least 16 percent of the shared mobility market, similar to the company's share in smartphones today."
If that happens, then Apple's share of the cars-as-a-service market could bring the company $400 billion in annual revenue and $16 in earnings per share by 2030. That would easily top the $155 billion in revenue that the iPhone brought Apple in fiscal 2015.
If those numbers pan out, it would mean Apple's car sharing service (whatever that looks like) could end up replacing the iPhone as the company's dominant revenue steam.
Is this likely?
It's much more plausible that Apple's automotive prospects revolve around shared mobility, rather than selling cars directly to individuals. I think Apple would have a hard time selling a luxury electric or autonomous car directly to consumers, even with Apple's strong brand and marketing prowess.
It may sound implausible now that car service revenue could take the place of the iPhone's, but it's becoming increasingly clear that Apple needs a new device (or service) to eventually replace the one product that accounts for 64% of its total revenue.
Apple's iPhone sales slowed last quarter, and the company is having a hard time expanding into new smartphone markets like India. It's obvious the device can't keep Apple afloat indefinitely, and Apple's wisely investing in new areas to find the iPhone's eventual revenue replacement.
It's still early to tell if Apple is betting on the right technology, but if the rumors are true, we should start seeing Apple's car plans take shape over the next two years. And that's a good thing, considering that 10% of new cars sold in 2035 will be driverless. If Apple is betting on a car-as-a-service business, then now is definitely the time to develop the technology.
Chris Neiger has no position in any stocks mentioned. He currently just finished a pretty amazing cup of coffee. The Motley Fool owns shares of and recommends Apple. The Motley Fool has the following options: long January 2018 $90 calls on Apple and short January 2018 $95 calls on Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.