For years, rumours have circulated about an autonomous, electric car from Apple. If this embodied the spirit of the iPhone, it would be sleek, desirable and feature a charging socket incompatible with standard cables. The speculation is currently buffeting shares in potential contract manufacturer LG Electronics.
The stock of the South Korean group fell by more than 7 per cent on Wednesday, following reports that the US tech giant had scaled back plans for a fully self-driving car and would delay the launch date to 2026.
Analysts at Bernstein expected Apple to sell 1.5mn cars between 2025 and 2030. LG Electronics was identified as the most likely supplier. Orders for the parts would have significantly boosted sales next year. That led overseas investors to move into the stock. On Wednesday, they promptly moved out again, selling a net Won31bn ($230mn) of LG Electronic shares.
The company’s business growth is slowing. The outlook for its core home appliance unit is poor. Despite a growing global market share in the premium OLED TV market, the business reported a loss in the second quarter.
This is reflected in a 35 per cent drop in LG Electronics’ share price this year. The stock trades at six times forward earnings, less than half the level two years ago.
Longer term, the promise of an Apple car is reason to back the stock. LG is well-placed to win the partnership. Its electric car business units span automotive infotainment, vehicle lighting and other components. There is no risk of LG cannibalising demand for electric cars of its own.
Apple’s model of outsourcing parts to contract manufacturers, as seen in its iPhone production, can be easily replicated through LG’s joint venture with Canadian auto parts maker Magna International.
Component orders for the electric car units of LG and its subsidiaries, which count Mercedes, BMW, and Audi as its customers, has reached a record $76bn this year. Growth in this sector should put a floor under the price of LG shares.
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