Elon Musk, Tesla could follow Tim Cook’s Apple playbook

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    • Apple has become the world’s most valuable company in part by building a network of services that allows the tech giant to keep making money from customers after they buy their iPhone or MacBook.
    • Morgan Stanley said Tesla is poised to follow a similar strategy.
    • “Tesla is on the verge of a profound model shift from selling cars (volume x price) to generating high-margin, recurring software and services revenue,” the bank said in a November 18 research note.
    • After adding digital services to its financial model for Tesla, Morgan Stanley raised its share-price target from $360 to $540.
    • Are you a current or former Tesla employee? Do you have an opinion about what it’s like to work there? Contact this reporter at [email protected], on Signal at 646-768-4712, or via his encrypted email address [email protected].
    • Visit Business Insider’s homepage for more stories.

Apple has become the world’s most valuable company in part by building a network of software-based services, from the app store to Apple TV+, that allows the tech giant to keep making money from customers after they buy their iPhone or MacBook.

Growing the percentage of Apple‘s revenues that come from services has become a key element of CEO Tim Cook’s strategy. Under his watch, Apple has launched Apple Music, Apple TV+, and iCloud.

Morgan Stanley analyst Adam Jonas thinks Tesla will follow a similar path in the coming years.

“Tesla is on the verge of a profound model shift from selling cars (volume x price) to generating high-margin, recurring software and services revenue,” Jonas wrote in a November 18 research note, co-authored by research associates Billy Kovanis, Evan Silverberg, and Eram Zaghi. 

Software-based products tend to be more profitable than the devices that run them because they have lower variable costs, the costs a company incurs every time it sells a new product or service. To sell a new iPhone, Apple has to pay for the phone’s parts, their assembly, and shipping to deliver the device to a store or customer’s home. When someone subscribes to Apple TV, Apple doesn’t have to build a new streaming service, it just gives the subscriber access to existing software and takes…

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