Top analyst sees Tesla making smartphone as Musk sideswipes Apple

Tesla's CEO has taken a swipe at Apple and is mending fences with OpenAI. Might he be preparing to build an AI-powered smartphone?

Jun 12, 2024 - 22:30

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Top analyst sees Tesla making smartphone as Musk sideswipes Apple

Updated at 12:03 PM EDT

Tesla shares powered higher Wednesday, but remain firmly south of their early-year levels, as investors pick through an intriguing report from a key Wall Street analyst that suggests Elon Musk could mount a challenge to tech giant Apple.

Apple (AAPL) shares in fact extended their record run in early trading, following on from a 7% gain on Tuesday that added around $180 billion in market value to the world's second-largest tech company as investors grow increasingly bullish on Apple's developing AI toolbox and the impact it could have on iPhone sales.

Curiously, one of the key voices that challenged some of Apple's larger ambitions, which were unveiled during its World Wide Developers Conference earlier this week, was Musk himself.

The Tesla (TSLA) CEO said he would ban the use of Apple iPhones by company employees, and would restrict their use by those visiting its production sites, after the tech giant planned to team up with Microsoft-backed OpenAI and its ChatGPT technology.

"Apple has no clue what’s actually going on once they hand your data over to OpenAI,” Musk said on his verified account on the X social-media platform, calling the tie-up "an unacceptable security violation.”

Elon Musk has taken a swipe at Apple and is mending fences with OpenAI. Could that mean he's preparing to build an AI-powered smartphone?
Slaven Vlasic/Getty Images

Morgan Stanley analyst Adam Jonas, however, wonders whether there might be an alternative motive in Musk's broader Apple sideswipe.

Is Musk mulling an iPhone challenge?

The longtime Tesla bull has touted the value of Musk's AI ambitions and the profit potential from its fusion into EV production and self-driving software.

In a note published Wednesday, Jonas argued that "the lines between car and phone are truly blurring.”

“From our continuing discussions with automotive management teams and industry experts, the car is an extension of the phone," Jonas wrote.

"Following Apple's WWDC [Musk] reignited the topic by saying that making such a device is 'not out of the question,' Jonas added. "As Musk continued to invest further into his own (generative AI efforts), such as Grok, the potential strategic and user-experience overlap becomes more obvious."

Jonas has argued that Tesla should be valued at more than its current market price based on the host of other business dynamics tied to electric-vehicle sales. These include the licensing of its driver-assistance systems as well as its battery, energy and insurance divisions.

The analyst also says Tesla's DoJo supercomputer, which is powered by AI technologies, could add more than $500 million to Tesla's market value "through a faster adoption rate in mobility [robotaxis] and network services [software as a service]."

Jonas argues that Tesla could create a compelling phone handset that could tap into its battery and storage capabilities and run powerful AI applications, creating in effect a "heavy car key."

"Any Tesla owner will tell you how they use their smartphone as their primary key to unlock their cars as well as running other remote applications while they interact with their vehicles," said Jonas, who carries an overweight rating and $310 price target on Tesla stock.

Mending fences with OpenAI

Jonas also noted media reports that suggest OpenAI is looking to develop a consumer device specifically designed for AI applications.

Musk, meanwhile, abruptly dropped a California lawsuit against OpenAI and its co-founders – Sam Altman and Greg Brockman. The complaint had accused the group of putting profit ahead of its founding mission of benefiting humanity.

The Tesla boss, who faces a key shareholder vote today on a $55.8 billion pay package that was agreed in 2018 but rejected by a Delaware judge last year, is also raising billions for his AI startup called xAI.

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The $6 billion infusion, which came as part of a Series B funding round backed by venture-capital investors Andreessen Horowitz and Sequoia Capital, could value xAI at as much as $24 billion.

"The way to think of Tesla is almost entirely in terms of solving autonomy and being able to turn on that autonomy for a gigantic fleet," Musk told investors in April. "And I think it might be the biggest asset-value-appreciation history when that day happens, when you can do unsupervised full self-driving."

Tesla shares were marked 5.1% higher in mid-day Wednesday trading to change hands at $179.52 each, a move that still leaves the stock down more than 25% for the year.