Is Apple Building A Battery Division To Compete With Tesla?

Investors have been too focused on Apple Inc.'s AAPL rumored automobile to realize that the company might be more interested in developing high-end batteries for consumer electronics. Earlier this year A123 Systems sued Apple and five former employees who allegedly violated an NDA (nondisclosure agreement). According to Reuters, the lawsuit claimed that "Apple is currently developing a large-scale battery division to compete in the very same field as A123." That quote was practically buried under the mountain of automobile-related rumors, but it has resurfaced now that Apple and A123 Systems have decided to settle their lawsuit. And it could hold an entirely new meaning for investors now that Tesla Motors Inc TSLA has unveiled its Powerwall home battery. "Clearly a lot of Apple products use batteries," Rob Enderle, principal analyst at Enderle Group, told Benzinga. "Developing battery expertise is a way you would differentiate in a very crowded market." Tech industry expert and analyst Jeff Kagan thinks this could be a good venture for Apple, but only if its own technology was truly superior. "If they have a technology that will be better than traditional battery technology and they apply the Apple brand to it, they obviously will have a big chance for industry success," Kagan told Benzinga.

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'Large Competitors'

Enderle said that Apple has been "facing some very large competitors and successfully holding them off," including LG and SAMSUNG ELECT LTD(F) SSNLF. "Those are broad-spectrum companies," he said. "They actually create an awful lot of the core technology they use in the devices. This looks like Apple kind of coming around to the idea that they need to create more of the stuff that defines their hardware [and get] less of it from another party." This would allow Apple to maintain a greater degree of secrecy when developing its products. "[It] also allows them to have differentiable technology that other people can't get, which I think is part of their goal here," he added. If Apple successfully develops a unique and leading battery technology, Enderle believes it would open the door for new product offerings.

A Little Late?

Kagan said that battery production is something he thought Apple would have started years ago. "They've been in need of batteries forever," he said. "While it makes sense, if they have new technologies, it has to be better than what's out there." Kagan said the problem with current battery technology is that "it stinks" and it "doesn't last long enough." "We should have had so many breakthroughs in battery technology in the last decade and we really have not," he added. "This is something that Apple obviously has a need for and it will make sense if it did it." Disclosure: At the time of this writing, Louis Bedigian had no position in the equities mentioned in this report.