- 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.
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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…