iPhone prices will rise significantly if Apple Inc.(NASDAQ: AAPL) assembles the smartphone domestically, according to Bank of America Merrill Lynch.
On Saturday, President Donald Trump tweeted Apple should manufacture its products in the U.S. to avoid his proposed tariffs on Chinese goods.
"Apple prices may increase because of the massive Tariffs we may be imposing on China - but there is an easy solution where there would be ZERO tax, and indeed a tax incentive. Make your products in the United States instead of China. Start building new plants now. Exciting! #MAGA," he said on social media.
The comment came a day after the Company's letter to U.S. trade representative Robert Lighthizer was revealed, which said Trump's proposed tariffs on USD 200 Billion worth of imported Chinese goods would affect the Apple Watch, AirPods, Mac mini and Apple Pencil.
"'Back to US' manufacturing seems to be back on the agenda for President Trump … We believe Apple could ask Hon Hai and Pegatron to shift a small portion of their iPhone manufacturing to the US in response to President Trump's request," analyst Wamsi Mohan said in a note to clients entitled "Handicapping the China trade risk and potential for ramping US manufacturing" Monday. "The conclusion was for the iPhone (not currently impacted by Tariffs) moving production (100% of final assembly) to the U.S. would need 20% price increases to offset the incremental labor costs."
Mohan said under the "most likely" scenario in which Apple moves 10% of its iPhone assembly to the U.S., the average selling price of the iPhone would rise by 8%. He also said if Apple shifts 50% or 100% of iPhone assembly domestically, it would increase iPhone prices by 14% and 20% respectively.
The analyst downplayed the prospect of Apple bringing more comprehensive iPhone production factories into the U.S. due to higher labor costs. He noted wages for a U.S. worker is 2.6 times more than a Chinese worker.
Mohan reiterated his buy rating and USD 250 price target for Apple shares, representing 13% upside to Friday's close.