Apple Faces Potential Price Hikes Due to Tariffs, According to BofA Analyst

As discussions surrounding trade tariffs linger, Apple Inc. (AAPL) finds itself at a crossroads where pricing strategies may need to be adjusted to mitigate the impact of tariffs on its products. A recent report by Bank of America (BofA) analyst Wamsi Mohan suggests that Apple may have to raise prices for iPhones and other devices sold in the U.S. market.

Tariffs and Their Potential Impact

Mohan’s analysis revisits Apple’s tariff scenario in light of President Trump’s recent memorandum which initiates reciprocal tariffs against U.S. trading partners. The analyst pointed out that, unlike the previous Trump administration when Apple received tariff exemptions, prevailing sentiments on Wall Street are pessimistic about future relief from these financial implications.

“As such, we are revisiting our tariff scenario for Apple, assuming all products will face at least a 10% tariff,” Mohan noted in his report. This potential tariff increase largely stems from trade tensions with China, but the ramifications extend to countries like India, where tariffs could be steeper, potentially complicating Apple’s supply chain.

Apple’s Supply Chain Strategies

In a strategic move toward supply-chain diversification, Apple has started manufacturing iPhones in India, aiming to lessen its reliance on Chinese production. Mohan clarified that the actual enforcement of these tariffs wouldn’t take place until at least April 2, suggesting that Apple has some time to navigate these challenges.

The Need for Price Adjustments

Mohan emphasized that in response to the anticipated tariffs, Apple may need to implement price hikes. “We estimate that Apple sells 50 million iPhones, 15 million iPads, and 10 million Macs in the U.S. per year,” he shared. “If Apple does not raise prices, we foresee a $0.26 negative impact on EPS (earnings per share) by the calendar year 2026.”

The BofA analyst posited that a 3% price increase across all Apple products sold in the U.S. could yield a different impact on earnings—projecting a $0.21 decrease, representing a drop of about 2.4% for the same period, assuming a 5% reduction in sales volume.

Understanding Price Elasticity

A critical factor in Mohan’s analysis lies in understanding the concept of price elasticity of demand. “If demand proves inelastic, the impact to Apple would be even smaller,” he concluded. Essentially, if consumers remain willing to purchase products despite price increases, the negative impact on the company could be less severe.

Furthermore, Mohan indicated that to entirely counterbalance a 10% tariff, Apple would need to raise its product prices by about 9%. This scenario also assumes that there would be a reduction in unit sales by 5%. The forecast shows that Apple’s earnings outlook remains stable, prompting Mohan to keep his fiscal 2025 earnings estimates unchanged and to maintain his price target at $265.

Market Reaction and Anticipating New Releases

In response to the information shared, shares of Apple rose slightly in early trading. Investors are notably on the lookout for announcements related to products, particularly a new iteration of its budget-friendly iPhone SE, which may debut under a new name and pricing strategy.

Conclusion

As Apple navigates potential tariffs that may necessitate price increases, the implications for investors and consumers are profound. The upcoming decisions regarding pricing strategies will be crucial, especially in light of global trade dynamics that continue to evolve. Understanding how Apple manages these challenges will be essential for stakeholders invested in the tech giant’s future performance and market competitiveness.