Apple Needs One More Thing Again

 Apple Needs One More Thing Again

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Will Apple headquarters in Cupertino, Calif., be a new hub for the car business?

Will Apple headquarters in Cupertino, Calif., be a new hub for the car business?

Photo: Apple Inc.

It is a testament to the busy year
Apple Inc.
has had that investors are now falling back on a familiar playbook.

In just the past few months, Apple has launched its first 5G iPhones, Mac laptops with the company’s own processors, a redesigned smart speaker and its first set of over-ear headphones under its flagship brand.

They all have different prospects; the new iPhones will lead a business segment expected to generate more than $165 billion in revenue this fiscal year alone, while the $550 headphones will likely only appeal to more devoted fans. But all were previously subjects of the ever-present rumor mill that constantly swirls around the world’s largest consumer electronics company. Apple has supposedly been working on headphones since it bought Beats Electronics in 2014.

Hence, Apple’s investors naturally wonder what’s next. This week brought a familiar possibility, in the form of a report by Reuters that the company has revived plans to get into the car business. Citing unnamed sources, the report says Apple is aiming to produce a passenger vehicle by 2024—one that will include “breakthrough battery technology.”

This isn’t the first time Apple has seemed on the threshold of challenging Detroit. The Wall Street Journal reported in 2015 that the company planned to launch an electric car in 2019. A year later, the company was laying employees off from the project and rethinking its plans. Automobiles have indeed proved to be a tricky area for tech giants to disrupt. And Apple investors who treasure the company’s 38% gross margins would be in for a rough ride; the world’s top-10 auto makers by market value average gross margins of 15%, according to data from S&P Global Market Intelligence.

Apple certainly has some interesting things cooking. The company spent a record $18.8 billion in research and development for the fiscal year ended September. That equates to just under 7% of annual revenue—the highest portion since 2003, when Apple was in the early days of developing the first iPhone.

But after running up more than 78% this year, Apple shares now trade at 33 times forward earnings—more than triple its multiple in 2015 when the first car rumors were swirling. Which means investors are already banking on dreams of the next big thing.

Write to Dan Gallagher at dan.gallagher@wsj.com

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